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Cede & Co. v. Technicolor, Inc. | 634 A.2d 345 (1993)

Dissenting shareholders to a merger have a right of appraisal, or a right to receive the fair value for their shares after a valuation by a court. In determining fair value, a court pretends as if the merger hadn’t occurred to calculate the corporation’s going concern, or business value assuming continued operation. In the 1993 case Cede and Company versus Technicolor, Incorporated, the Delaware Supreme Court considered whether a court must consider nonspeculative post-merger plans when calculating a corporation’s going concern in an appraisal proceeding.

Technicolor was a corporation engaged in the business of processing film for Hollywood movies. But by the late 1970s, the corporation began suffering financial losses.

By 1982, Technicolor was in serious financial trouble. Around the same time, Ron Perelman, the controlling shareholder of MacAndrews and Forbes Group, Incorporated, or MAF, determined that Technicolor would be an attractive takeover candidate. Following discussions, Technicolor and MAF agreed to a two-step merger in which MAF would make a cash tender offer of $23 per share and then conduct a cash-out merger with shareholders who didn’t accept the tender offer.

In November of 1982, the tender offer opened and, by the time the offer closed, MAF had acquired 82 percent of Technicolor’s shares. Meanwhile, MAF had developed a plan for improving Technicolor’s performance, which included selling Technicolor’s unprofitable divisions. In addition, during the intermediate period while the tender offer was pending, MAF refined its strategy and took initial steps toward eliminating unprofitable divisions.

Subsequently, Cinerama, Incorporated, a dissenting shareholder from the merger, and Cede and Company, the beneficial owner of Cinerama’s shares, brought an appraisal proceeding against Technicolor in the Delaware Chancery Court. Following a hearing, the chancery court held that it couldn’t consider MAF’s plan to eliminate unprofitable divisions in calculating Technicolor’s going concern and found the fair value of Cinerama’s stock to be $21.60 per share on the date of the merger. Cinerama and Cede then appealed to the Delaware Supreme Court.

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