Tennessee dissenters claim Delaware block method is passé

Athlon Sports Communications, Inc. v. Duggan, 2016 Tenn. App. LEXIS 773 (Oct. 17, 2016). 

Until now, Tennessee law has mandated the use of the Delaware block method in a judicial appraisal.

But, recently, the approach came under attack in a case involving a closely held Nashville, Tenn.-based media company whose controlling shareholders had pursued a squeeze-out merger and later asked the trial court for a judicial appraisal of the dissenting shareholders' interest. 

The controlling shareholders' expert proposed a valuation exclusively based on the DBM. He found the company's value was $NIL under each of the three valuation approaches making up the method: asset approach, income approach, and market approach.

The dissenting shareholders' expert applied the DBM and also performed a discounted cash flow analysis to account for the company's pursuit of a turnaround strategy. The result was a valuation of almost $6.50 per share.

The trial court adopted, for the most part, the DBM-based analysis the expert for the controlling shareholders had submitted. It completely rejected the value determinations of the opposing expert.

The dissenting shareholders appealed, arguing the trial court erred when it based its fair value determination on the DBM alone. That method, with its rigid focus on past rather than future performance, was outdated and incapable of accounting for a company that was remaking itself.

The appeals court embraced the use of the DBM. A digest of the decision and the court's opinion are available at BVLaw.