“The Anna Karenina principle is alive and well in the Delaware courts,” according to a paper that explores statutory rights of appraisal and the search for the sometimes “elusive” concept of fair value. The Anna Karenina principle says that it is possible to fail in many ways, but you can succeed in only one way, which is to avoid each of the ways to fail. The authors, Arthur H. Rosenbloom (Consilium ADR) and Gilbert E. Matthews (Sutter Securities), present the results of their study of cases and come to a number of conclusions, one of which is that the Court of Chancery has shown a strong preference for the income approach (primarily DCF) over the market approach. Furthermore:

• The capital asset pricing model (CAPM) is preferred to the buildup method;
• For calculating terminal value, a growth model is preferred; and
• A supply-side equity risk premium (ERP) is favored over an historical ERP.

There are more details and conclusions in the paper, “Delaware Appraisal Litigation—Non-Arm’s-Length Transactions, Arm’s-Length Transactions and the Anna Karenina Principle,” which is available here.