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Delaware Provides Guidance Regarding Discounted Cash Flow Analysis

By Harvard Law School Program on Corporate Governance

Two recent opinions from the Delaware Court of Chancery, both authored by Vice Chancellor Leo E. Strine, Jr., provide important guidance for the preparation and use of a discounted cash flow (DCF) analysis in appraisal and other merger-related proceedings. [1]

In Global GT LP v. Golden Telecom, Inc., C.A. No. 3698-VCS (Del. Ch. April 23, 2010), shareholders successfully challenged the pre-merger value of a Russian telecommunications company, Golden Telecom, Inc., in an appraisal proceeding. The valuation experts for both the shareholders and the company each primarily relied on the DCF method of valuation but arrived at meaningfully different results: $139 per share (shareholder valuation expert) versus $88 per share (company valuation expert). Vice Chancellor Strine ultimately arrived at an appraised value of approximately $125 per share (Golden was originally purchased at $105 per share) after making determinations with respect to the key differences between the experts? competing DCF valuations. In particular, the Vice Chancellor made determinations with respect to the following key elements of the DCF:

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Full post as published by The Harvard Law School Corporate Governance Blog on July 16, 2010 (boomark / email).