Implied Control Premiums through Delaware Appraisal Decisions

Abstract

The valuation industry has utilized the concepts of control premiums and corresponding discounts for lack of control (DLOC) for decades. There has been considerable debate regarding the application of control premiums paid to acquire public companies, given the likely existence of synergies embedded within those premiums. This article analyzes implied control premiums using Delaware Court of Chancery (the “Court”) decisions in which the Court determined the fair value of the shares of formerly public companies. While this article is not intended to endorse the use of adjusted acquisition premiums when calculating a control premium or DLOC, it provides empirical support for the concept that acquisition premiums likely include synergistic elements and that an appraiser should consider downward adjustments for this issue.