The IMD first appeared in Delaware Chancery cases in 1992 and 1995, but didn’t become entrenched until LeBeau v. M.G. Bancorporation (1998 Del. Ch. LEXIS 9), when the majority shareholders hired Shannon Pratt. In arguing for the application of the IMD, the dissenters pointed to an excerpt from Pratt’s Valuing a Business (3rd ed.1996), which stated that the guideline public company analysis usually required some adjustment to account for control.
That was the generally accepted view at the time—with only a few early detractors (in particular, Eric Nath and Mark Lee), who argued that the prices of freely traded companies already included dispersed control. By 2000, Pratt changed his mind. “Valuation analysts who use [CCA] and then automatically tack on a percentage ‘control premium’…had better reconsider their methodology,” he wrote, in the 4th edition of his familiar text. Chris Mercer also updated his position in Business Valuation: An Integrated Theory. As a result, the predominant view among BV professionals came to reject the implied discount in minority share pricing.
In 2001, however, in Agronoff v. Miller (791 A.2d 880), the Delaware Chancery Court cited Pratt’s 1996 and Mercer’s 1992 editions, despite the availability of the updated versions that discredited the IMD doctrine. Given the weight of precedent in judicial opinions and the resistance to overturning prior law, the court has stuck to the doctrine and cited these older authorities as support—even in cases as recent as 2003 and 2004. Gil Matthews, who spoke at the ASA Advanced BV Conference on this topic, acknowledged the irony that “neither Pratt nor Mercer currently support the position that the courts keep citing them for!”
“It makes you wonder whether the formal litigation process is the best way for sound, rational analysis to come out,” Professor Lawrence Hamermesh said. The IMD now seems mandatory—an entrenched “doctrinal weed” among Delaware statutory appraisal law.