Felder v. Anderson, Clayton & Co.
| Decision Date | 02 February 1960 |
| Citation | 39 Del.Ch. 76,159 A.2d 278 |
| Parties | William D. FELDER, Jr., Plaintiff, v. ANDERSON, CLAYTON & CO., a corporation of the State of Delaware, Defendant. |
| Court | Court of Chancery of Delaware |
Aaron Finger of Richards, Layton & Finger, Wilmington and Maurice E. Purnell of Locke, Purnell, Boren, Laney & Neely, Dallas, Tex., for plaintiff.
William Prickett, Sr., of Prickett & Prickett, Wilmington and Chester M. Fulton of Fulbright, Crooker, Freeman, Bates & Jaworski of Houston, Tex., for defendant.
SEITZ, Chancellor.
This is the decision on stockholders' exceptions to the appraiser's report fixing the value of shares of stock held by stockholders dissenting from a merger. The surving corporation filed no exceptions. The two stockholders entitled to an appraisal were shareholders of Southland Cotton Oil Company ('Southland') which was merged into Anderson, Clayton & Company ('Anderson-Clayton') on July 31, 1955. These stockholders held 636 and a fraction out of a total of 12,368 outstanding shares. The delay in bringing the matter to final decision appears to have been the responsibility of the parties.
Southland was organized in 1914 by a merger of several independent conpanies. In 1946 Mrs. Tucker's Foods, Inc., acquired 87% of Southland's stock. In February 1952, Mrs. Tucker's was merged into Anderson-Clayton so that Anderson-Clayton thereafter owned 87% of Southland's stock. At no pertinent time did Southland have any shares outstanding other than common shares.
Southland's principal business was the processing of cottonseed on cottonseed oil mills, which removed the cotton fibers or linters from the unprocessed cottonseed, extracted the oil from the seed and prepared the residue for sale in the form of hulls, cottonseed cake and meal. The fibers or linters were sold for packing in furniture, mattresses, etc. The oil which was extracted from the cottonseed was the principal product of Southland and was sold to refiners, who, in turn, prepared the cottonseed oil for margarine, cooking oil, salad dressing and other edible products. The cake and meal were principally used for animal feeds.
On July 31, 1955, Southland owned and operated nine cottonseed oil mills located in Jackson Mississippi; Shreveport, Louisiana; Tallulah, Louisiana; Oklahoma City, Oklahoma; Paris, Texas; Corsicana, Texas; Waxahachie, Texas; Temple, Texas and Cameron, Texas. At Jackson, Mississippi, Southerland also owned and operated a solvent process plant for the removal of oil from soy beans.
As adjuncts to its Mississippi and Louisiana plants, Southland also owned and operated at Ruleville, Mississippi and Holly Bluff, Mississippi, receiving stations for the purchase and storage of cottonseed. As a source of supply of cottonseed, Southland owned and operated fifteen cotton gins in Texas and Louisiana, where it received cotton brought in from the farms, removed the seed for delivery to its oil mills and delivered the baled cotton, after ginning, to the farmer.
In addition, Southland owned and operated a feed mill in Dallas where cottonseed cake and meal were processed and mixed with other feeds and sold.
On July 31, 1955, Anderson-Clayton was the largest cotton merchant in the world, with varied activities in this country and abroad. Among its numerous activities, it owned and operated cottonseed oil mills in Abilene, Lubbock, Memphis and El Paso, Texas and in Arizona, California, Mexico and other foreign countries.
The principal Anderson-Clayton oil mills in Texas were located in the western part of that State in an area known as the High Plains. In the High Plains cotton was raised on relatively large artificially irrigated farms in a dry climate. The Texas oil mills of Southland, on the other hand, were located in that part of East Central Texas known as the Blacklands. The average cotton farm in the Blacklands was considerably smaller than the cotton farms on the High Plains, and dependent upon natural sources for water rather than artificial irrigation.
The appraiser's mathematical approach to the appraised value is as follows:
Earnings Value $365.23 x 6 = $2,191.38
Dividend Value $220,00 x 4 = 880.00
10)$3,071.38
Per share valued 307.14
The stockholders claim that the minimum per share value should have been $827. The simplest approach is to take up seriatum the so-called six errors of the appraiser alleged by the stockholders.
The stockholders claim the appraiser committed error by accepting sale price rather than sound value in arriving at the 'asset value' of Southland's plans. The appraiser did not give weight to asset value but made a finding thereon solely to assist the court. The principal area of dispute concerns the value of the plants. The appraiser found that Southland's plants were worth $1,595,000, being their sale price. His conclusion was based upon the testimony and exhibits prepared by Mr. Charles Campbell, a witness for defendant. Mr. Campbell submitted an appraisal of Southland's plants, presumably as of the date of merger. This appraisal listed the 'reproductive costs', and 'sound value' and the 'sale price' of each of Southland's plants. The reproduction costs came to $9,570,527, the sound value to $4,471,665 and the sale price to $1,595,000. As the appraiser states in his report, Mr. Campbell testified that 'sound value' was reproduction costs less depreciation and 'sales price' was the value of the property in the event of a sale as a going concern. As the appraiser notes, Mr. Campbell also testified at one point, that the real intrinsic value of the properties would be their sales price.
In his appraisal report Mr. Campbell states:
'The sound values [for Southland's plants] are established in relation to the general state of repairs, obsolescence or applicability in a modern, efficient plant and represent the values of those properties to a going concern.
'The sale values are determined by my knowledge of sales of similar properties in the past and contemplating the owner only being interested in selling in its entirety or $1,595,000.'
The court has some difficulty understanding Mr. Campbell's testimony as to the significance of sound value as contrasted with sales value. The appraiser's report cites certain pages of the transcript to show Mr. Campbell's understanding of the difference between the sound value and the sales value as used in the Campbell report. The appraiser himself had difficulty in understanding the difference between the two expressions. Thus, at a point later in the testimony than that cited, the following questions were asked by the appraiser and answered by Mr. Campbell (p. 2080-81):
It seems to me that Mr. Campbell stated that the sound values as found in his report indicated the going concern value of assets to Southland, whereas, the sale price indicated the value of the plants if they were sold to someone else for use in a going concern. As I understand the Delaware law, the asset value is to be determined by finding the going concern value of the assets to the company whose shares are being appraised. I therefore, while understanding the appraiser's difficulty, am compelled to conclude that the asset value for appraisal purposes is not the $1,595,000 found by the appraiser.
The question arises then as to whether the 'sound value' found by Mr. Campbell should be considered substantial evidence of asset value, even though it is said to be depreciated reproduction cost.
It has been recognized in prior opinions of this court, see for example, Adams v. R. C. Williams & Co., Inc., Del. 1960, 158 A.2d 797, that depreciated reproduction cost is not the end-all in arriving at asset value. The appraiser was correct therefore in saying that the Delaware cases do not require that 'net asset value' be determined on the basis of depreciated reproduction cost. However, the appraiser then stated that the plants would be worth the depreciated reproduction cost values appearing in the record only if the earnings of Southland were at such a level that a reasonable capitalization thereof would make the purchase of the properties on a depreciated reproduction cost basis attractive to a potential buyer. He stated further that the plants of Southland could have value to its stockholders only to the extent that they generated earnings or could be sold. He concluded that the prospective earnings of Southland when capitalized on a reasonable basis were not sufficient to support an evaluation as high as any of the depreciated reproduction costs evaluations found in the record. As a result he concluded that the maximum value for the plant as assets was no more than the sales price thereof.
As I analyze the appraiser's reasoning, he used capitalized earnings to show that the asset value could not be equal to the depreciated reproduction cost figures found in the record. This being...
To continue reading
Request your trial
-
Lynch v. Vickers Energy Corp.
...at the rate of 7% was ordered; in Universal City Studios, Inc., supra, interest of 5.23% was awarded. And in Felder v. Anderson, Clayton & Co., 39 Del.Ch. 76, 159 A.2d 278 (1960), interest was fixed at the rate of 43/4%; in Sporborg v. City Specialty Stores, Inc., 35 Del.Ch. 560, 123 A.2d 1......
-
Blasingame v. American Materials, Inc.
...that will appreciate in value. Sporborg v. City Specialty Stores, [35 Del.Chan. 560, 123 A.2d 121 (1956) ]; Felder v. Anderson, Clayton & Co., 39 Del.Ch. 76, 159 A.2d 278 (Ch.1960). Q B & R was such a business, whose primary purpose was to generate earnings for its shareholders. The fact th......
-
Bogosian v. Woloohojian Realty Corp.
...amount of her shares' value since the corporation chose to purchase the shares instead of being dissolved. See Felder v. Anderson, Clayton & Co., 159 A.2d 278, 287 (Del.Ch. 1960). Under these circumstances, the rate of interest which WRC would have paid to a third party to borrow money to p......
-
David J. Greene & Co. v. Dunhill Intern., Inc.
...the 'multiplier' issue; choosing that factor is among the most difficult of all technical issues. Compare Felder v. Anderson, Clayton & Co., 39 Del.Ch. 76, 159 A.2d 278 (1960). In its approach Duff, Anderson developed a number of quantitative comparisons of Spalding with a group of twelve o......
-
"Fair value" as an avoidable rule of corporate law: minority discounts in conflict transactions.
...contrary precedent upholding discounts based on the characteristics of the shares being valued. In Felder v. Anderson, Clayton & Co., 159 A.2d 278 (Del. Ch. 1960), the court accepted the court-appointed appraiser's reduction by 10% of an average price-earnings multiple for comparable co......
-
The short and puzzling life of the "implicit minority discount" in Delaware appraisal law.
...249 A.2d 427, 433-34 (Del. Ch. 1968) (referring to price earnings ratios for comparable companies); Felder v. Anderson, Clayton & Co., 159 A.2d 278, 285 (Del. Ch. 1960) (stating that the multiple was "obtained by averaging the earnings-price ratios of representative stocks for the five ......