In re Application of General Realty & Utilities Corporation
| Decision Date | 26 March 1947 |
| Citation | 52 A.2d 6,29 Del.Ch. 480 |
| Parties | In the Matter of the Application of GENERAL REALTY & UTILITIES CORPORATION, a Delaware corporation, the surviving corporation under an agreement of merger for an appraisal pursuant to Section 61 of the General Corporation Law of the State of Delaware of the value of certain shares of its formerly authorized preferred stock |
| Court | Court of Chancery of Delaware |
Aaron Finger of the firm of Richards, Layton and Finger, (Leonard P. Moore, of Chadbourne, Wallace, Parke & Whiteside, of New York City, of counsel), for General Realty & Utilities Corporation.
Morris Steel, Nichols & Arsht, and Unger & Pollack, of New York City, for the stockholders.
SEITZ, Vice-Chancellor.
The issue here is whether the appraiser committed error in arriving at his determination of the value of the dissenting stockholders' shares made pursuant to our present appraisal statute.
As a consequence of a merger between General Realty & Utilities Corporation and its wholly owned subsidiary Gruco, Inc., both Delaware corporations, certain owners of preferred stock of General Realty & Utilities Corporation dissented and requested an appraisal of their shares. Pursuant to the provisions of our appraisal statute, Section 61, Rev.Code 1935, § 2093, 43 Del.Laws, c. 125, § 6, this court appointed an appraiser to determine the value of the dissenters' shares as of September 30, 1944, exclusive of any element of value arising from the expectation or accomplishment of the merger. A great amount of testimony was presented to the appraiser and many exhibits were marked in evidence.
The appraiser was authorized by order of the court to submit a draft of his report to the parties and to permit them to file exceptions thereto, and then to file his final report. The appraiser submitted to the parties a draft report of his appraisal wherein he found a value of $ 110 a share for the preferred stock. After considering exceptions filed by the stockholders, a final report was filed with the court setting a value of $ 120 a share on the preferred stock. While the General Realty & Utilities Corporation (hereinafter referred to as "the Corporation") did not file exceptions to the draft report, it did file exceptions to the final report of the appraiser. The dissenting stockholders filed exceptions to the draft report and also to the final report of the appraiser. Certain other dissenting stockholders who filed exceptions to the appraiser's draft report have not filed exceptions to the final report.
This constitutes the decision on the exceptions of certain dissenting stockholders and the Corporation to the appraiser's final report.
The appraiser's final report numbers 116 pages and narrates in great detail and with great clarity the problems considered and his conclusions with respect thereto. The nature of the exceptions can be better understood by first considering the undisputed material facts as they appear in the appraiser's report, and then quoting his final conclusion with respect to the value of the shares.
The Corporation was incorporated in January, 1929, with its principal office in New York City. At the end of 1929, the Corporation had outstanding 294,200 shares of $ 6 cumulative preferred stock (dividends at option of stockholder could be taken in common stock at specified rates) and 1,544,515 7/8 shares of common stock. The preferred stock had been given a stated value of $ 100 a share and the common a stated value of $ 5 per share.
The original plan of the Corporation's business activities called for the making of loans for the construction of buildings, the purchase of property for resale, the erection of buildings for investment or resale, and related activities. Shortly after the commencement of business, the financial depression in the early 1930's brought about a situation whereby there was a cessation of building and no need for building loans. Neither was there any real market for the resale of the properties acquired by the Corporation. Thus, from that time to the present the Corporation's business has consisted chiefly of owning holding and operating office buildings, apartment houses, store properties and hotels, mostly in New York City, although there is one property in Boston and one in Kansas City. In addition, the Corporation owns certain unimproved property in New York City. The various properties were held in the name of separate corporations subsidiary to the Corporation.
The income of the Corporation consists of the income from these various operations.
At the merger date no dividends on the preferred stock had been paid since 1931, except for a single $ 6 payment in 1943. The dividends in arrears on the preferred stock on July 15, 1944, just preceding the merger, aggregated $ 72 per share.
The following is a summary of the net income of the Corporation and the amount of dividends paid on the preferred and common stock from 1929 to September 30, 1944, the end of the fiscal year:
Dividends
Dividends
Net
Paid --
Paid --
Income
Preferred
Common
1929 [+]
$ 3,480,611
$ 4.50 or
none
9/40ths
Common
1930
4,287,965
$ 6. or
none
12/40ths
Common
1931
1,246,776
$ 4.50 or
none
3/40ths
and 6/50ths
Common
1932 [*] d
535,031
none
none
1933 d
448,442
none
none
1934 [**] d
308,050
none
none
1935 d
56,621
none
none
1936
107,756
none
none
1937
193,165
none
none
1938
103,540
none
none
1939 [***]
45,356
none
none
1940
76,115
none
none
1941
61,692
none
none
1942 [**]
118,721
none
none
1943 [**]
230,570
$ 6 or
none
12/50ths
Common
1944 [++]
611,428
none
none
The following is a condensed, consolidated balance sheet, as of September 30, 1944, based on the Corporation's annual report as of that date, but restated to eliminate the effect of the merger and the effect of the conversion of the stock:
1944 $ 2,279,510.51 -- Note 3 of Annual Report) per An-
nual Report
2,224,466.56
Due from Renting Agents and Tenants
284,691.58
Accrued Interest and Dividends Receivable
18,936.88
Real Estate Mortgage Loans Receivable
2,638,500.00
Improved Properties: --
Appraised Values of March 31, 1944
21,267,335.00
Less Depreciation for the Six Months
Ended September 30, 1944
228,414.63
--------------
21,038,920.37
Mortgages Payable
15,305,829.69
5,733,090.68
---------------
Unimproved Properties: --
Appraised Values as of March 31, 1944
plus subsequent acquisitions at cost
378,147.57
Mortgages Payable
32,580.00
345,567.57
---------------
Furniture and Fixtures -- At Cost Less
Depreciation
3,744.42
Prepaid Expenses and Other Deferred Charges
per Annual Report
531,612.46
Less Debenture Expense Deferred In-
cluded Therein (Note 5 of Annual Re-
port)
92,141.46
---------------
Prepaid Expenses and Other Deferred Charges as Ad-
justed
439,471.00
Other Assets
11,368.32
Expenses Incurred in Connection with the Merger and
the Conversion of Capital Shares (Note 1-G of An-
nual Report) Restored for the Purpose of this State-
ment
122,855.28
---------------
Total
$ 13,084,779.12
LIABILITIES
Accounts Payable and Sundry Creditors
$ 190,766.55
Accrued Liabilities
469,176.65
Deferred Income
7,859.60
Reserve for Taxes and Contingencies
600,000.00
Capital Shares and Surplus -- Restated to
Eliminate the Effect of the Merger and
of the Conversion of Capital Shares
(Note 1-F of The Annual Report)
Preferred Stock -- 111,000 Shares of A
Stated Amount of $ 25.00 a Share
$ 2,775,000.00
Common Stock -- 1,544,702.88 Shares of A
Par Value of $ 1.00 a Share
1,544,702.88
Surplus
7,497,273.44
---------------
Total Capital Shares and Surplus
11,816,976.32
---------------
Total
$ 13,084,779.12
Therefore, on the basis of the values set forth in the Corporation's annual report, we find the following per share book value of the preferred stock at the merger date:
Book Value Per Share
$ 106.46
The market quotations for the preferred stock, which was traded on the New York Stock Exchange, ranged from a low of $ 5 per share in 1932 to a high of $ 90.50 in 1944.
After considering and discussing the voluminous and often conflicting testimony which was introduced to show the asset value and potential earning capacity of the Corporation, the appraiser set forth his general conclusion in the following language:
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