In response to the article on appraisal arbitrage by Gaurav Jetley and Xinyu Ji of the Analysis Group, about which we’ve posted before, Villanova Law Professor Richard A. Booth now argues in The Real Problem With Appraisal Arbitrage [via Social Science Research Network] that Jetley and Ji’s charge against the Delaware courts for overly
Valuation Basics: Equity Risk Premium and Beta
Prior posts in our “Valuation Basics” series have examined the various components of the cost of equity capital under the Capital Asset Pricing Model (“CAPM”). In this post we continue our discussion of those components, focusing on the equity risk premium and its modifying coefficient, the beta.
The CAPM has become the Delaware Court of…
Chancery Court Rejects Use of Merger Price in Appraisal Action and Accepts Experts’ Direct Capitalization of Cash Flows Valuation Method; Court Also Accepts Experts’ Use of Buildup Model
On May 12, 2014, the Delaware Court of Chancery issued its latest appraisal opinion, Laidler v. Hesco Bastion Environmental, Inc., addressing, among other things, the limitations on the use of merger price in an appraisal proceeding.
The petition for appraisal was brought by a former employee of Hesco Bastion USA, Inc. (“Hesco”), which manufactured…
Valuation Basics: Calculating the Equity Size Premium
By Larry Rolnick & Michael Hampson on
In a prior post, we explained how the Capital Asset Pricing Model (“CAPM”) has become one of the frequently employed methods used by the Delaware Court of Chancery to calculate the cost of equity for the discount rate in a DCF analysis. In this post, we focus on one specific component of the CAPM:…
Valuation Basics: Determining a Discount Rate, or WACC
By Steve Hecht & Michael Hampson on
The discounted cash flow method, or “DCF”, has become the generally accepted method of valuation in Delaware’s Court of Chancery. The DCF method seeks to value a company by discounting the company’s projected future cash flows to present value based on the perceived risk of investing capital in that company. As recently summarized by Vice…