Further to our prior post on valuing publicly-traded stock held by an appraisal target, several Delaware cases following Paskill v. Alcoma Corp.’s 2000 ruling have continued applying the principle that where an appraisal target’s “operative reality” at closing is to continue holding the non-operating assets and not sell or dispose of them, those assets must be valued for statutory appraisal exclusive of any sale costs or tax consequences that would otherwise be incurred if the target were to monetize those assets instead.

Thus, for example, in Berger v. Pubco Corp., the Court of Chancery held that it was improper to reduce the value of the company’s securities portfolio “based on projected capital gain tax liability that might (or might not) be incurred if the securities portfolio is in fact ever sold.”  2010 WL 2025483, at *1 (Del. Ch. May 10, 2010).  Accordingly, because the issue was governed by Paskill, it was improper to appraise the company’s fair value by subtracting “the expected capital gains taxes that would be due in the event these appreciated assets were sold to determine an ‘adjusted’ value on the merger date.”  Id.

Similarly, in Reis v. Hazelett Strip-Casting Corp., the Chancery Court held that it was improper to deduct costs incurred in a future sale of, and taxes to be paid on, appreciated real estate holdings because, under Paskill, “Delaware law does not permit these deductions when valuing a corporation as a going concern.”  28 A.3d 442, 475-76 (Del. Ch. 2011).  The Court therefore considered the full appraised value of the non-operating real estate asset in its fair value determination of the company.

And, within the last couple of years, the Chancery Court reaffirmed the general principle that, under Paskill, a court must value the appraisal target as a going concern based upon its “operative reality” at the time of the merger.  See Ramcell, Inc. v. Alltel Corp., 2022 WL 16549259, at *9 (Del. Ch. Oct. 31, 2022). 

The long-standing principle of Paskill appears well-settled and we’re not aware of any contrary authority or challenge in the works.