Does a majority shareholder's interest in Page 19 need to be valued as a "going concern"?

However, such "valuation of a stockholder's interest as a 'going concern' is necessary only when the board's proposal will alter the nature of the corporation through a merger," dissolution, or similar transaction because when a corporation ceases to exist through such a transaction its full going-concern value is captured and its shareholderswhether majority and minorityare therefore entitled to their pro rata share of that value. (Applebaum v. Avaya, Inc. (Del. 2002) 812 A.2d 880, 893.) In the case of a merger, this valuation requirement "prevent[s] the proponents of the merger from 'reaping a windfall' by placing the full value of the company as a going concern into the merged

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entity while compensating the dissenting shareholder with discounted consideration." (Ibid.)

In contrast, in a reverse stock split or other nonmerger/dissolution transaction where the corporation continues on, "if the cashed-out stockholders were awarded the value of the company as a going concern, they, rather than the corporation, would receive a windfall. The cashed-out stockholders could capture the full proportionate value of the fractional interest, return to the market and buy the reissued stock at the market price, and realize the going concern value a second time should [the corporation] ever merge or otherwise become subject to a change of control transaction." (Applebaum v. Avaya, Inc., supra, 812 A.2d at p. 894.)