The Economics of Delaware Fair Value
Brett A. Margolin and Samuel J. Kursh
The most important and contested component of appraisal rights, the Fair Value standard, receives little attention in the literature on appraisal. While the literature provides theoretical treatments of appraisal’s origin and availability, appraisal practice seldom engenders legal battles over such issues. Counsel, judges, and valuation experts, however, routinely grapple with Fair Value’s construction as the petitioner’s pro rata share of the entire company as a going concern. This article demonstrates that the same economic principles used to explain the economic structure of corporation law create appraisal’s Fair Value standard. Fair Value’s pro rata exclusion of minority discounts values the petitioner’s interest absent managerial agency costs, and supports corporation law’s economic function of decreasing corporations’cost of capital and thereby increasing the efficacy of the corporate form.