Aida Abelow and Helen G. Hamburg as stockholders of Midstates Oil Corporation instituted this suit on December 29, 1958 for the purpose of enjoining a proposed sale of all of the assets of such corporation to its parent corporation, Middle States Petroleum Corporation, pursuant to a contract which by its terms was to be consummated on or before January 1, 1959. While a motion for an order restraining the consummation of such proposed sale was denied on December 29, 1958, a hortatory rule simultaneously issued directing Midstates to show cause why consummation of the proposed sale should not be enjoined. However, the interested parties defendant proceeded as planned, and after the sale was carried through the net assets of Midstates reduced to- cash were speedily made available to its stockholders including plaintiffs.
Thereafter the case was dismissed inasmuch as the sole relief originally sought by plaintiffs had been the enjoining of a transaction which had since been consummated. Leave to amend having been reasonably sought, plaintiffs were granted a limited time for taking appropriate action under Rule 15, Del.C.Ann. and thereafter prepared and filed several motions to which were attached proposed amendatory and supplemental pleadings in which additional parties plaintiff were named. Plaintiffs’ case as redesigned in their revised pleadings was no longer conceived of as a derivative suit brought for the benefit of their corporation but rather as an action of individual stockholders to recover personal money judgments for themselves and other members of their class, Lebold v. Inland Steel Co., 7 Cir., 125 F2d 369. Their motions were granted after argument, and in conformity with the Court’s opinion of November 25, 1959, 38 Del.Ch. 572, 156 A.2d 416, an order was entered on January 13, 1960 granting leave to plaintiffs to file their proposed amendments and supplements to the original complaint.
Midstates and Tennessee Gas Transmission Company thereupon filed their answers. Midstates denied plaintiffs’ broad allegation that the boards of Midstates' and Middle States were made up
On August 18, 1960, plaintiffs moved for summary judgment, supporting such motion with an affidavit of one of their counsel, Daniel O. Hastings, to which were attached numerous exhibits. Countering such motion, the corporate defendants also moved for summary judgment, a motion which they in turn supported with a number of counter affidavits. Briefs having been thereafter filed and argument had, such opposing motions for summary judgment are now before the court for decision.
While plaintiffs concede that § 271, Title 8 Del.Ch. permits a Delaware corporation to sell its assets in a proper case, they contend that in the transaction here under attack they and others of their class have not received an adequate sum of money for their shares in liquidation, having suffered such injury as a result of actionable breaches of fiduciary duty on the part of directors common to the boards of Middle States and Midstates as well as on the part of the stockholder in control of Midstates, namely Middle States, which at the time of the sale owned 95.93% of the corporate stock of Mid-
The appearing defendants reply that while the price for the Middle States shares set in the exchange transaction is irrelevant to plaintiffs’ claims, the same ratio applied to a hypothetical contemporaneous exchange of the shares of Tennessee Gas and Mid-states would have netted the stockholders of Midstates less than they actually received on their corporation’s liquidation. They further contend that the only way in which Tennessee Gas could be successfully charged with having improperly benefited itself through its instrumentality, Middle States, would have been to have caused such corporation to pay less for the assets of Mid-states than they were worth, a result which such defendants contend
Turning now to the complicated corporate changes here involved, it is alleged by the corporate defendants that they had their genesis
Meanwhile the directors of Middle States decided to offer to purchase the assets of Midstates and the services of the firm of Robert W. Harrison and Co. were engaged to make an appraisal of the latter’s assets. On the basis of the value set in such appraisal Middle States offered to purchase the assets of Midstates for the sum of $24,970,000 and to assume the liabilities of such company. Such offer was accepted and thereafter approved by the stockholders of Midstates. At the time of such acceptance and approval not only had a complete slate of directors of the selling and buying corporations been put into office by Tennessee Gas but the buying corporation was also the owner of almost 96% of the selling corporation’s stock. However, Middle States and Tennesseee Gas were independent of each other at the time of the earlier exchange of stock between them and the exchange was clearly one between individual stockholders. To be sure, such action on the part of the stockholders of Middle States was taken on the recommendation of their corporate president, nonetheless it was, as just noted, a transaction between individual stockholders and not between the corporations as such. The final step in the emergence of Tennessee Gas as the
The basic questions to be decided are whether or not plaintiffs have been actionably injured, and if so at whose hands. The immediate question to be decided is whether or not the issue of alleged liability can be appropriately decided on the pending motions. In dealing with these questions I shall pass over plaintiffs’ contentions about lines of fiduciary duty stemming- from Tennessee Gas’s controlling position and turn preliminarily to the data of record which is concerned with the value of the assets of Midstates at the time of their sale because if such assets are found after careful scrutiny to have been sold for a proper amount under Delaware law, plaintiffs would appear to have no cause to complain.
The basic position of the corporate defendants is that under Delaware law a sale of assets under § 271, Title 8, Del.Ch. will withstand any stockholder objection if it is made for a fair and adequate price, Allied Chemical & Dye Corporation v. Steel & Tube Co., 14 Del.Ch. 1, 120 A. 486. Defendants contend that the price offered for the assets of Midstates, while based in part on a study of accounting data prepared by Arthur Anderson & Co., was basically derived from an independent survey made by Robert W. Harrison, a well-known and respected expert in appraising oil and gas properties. It is pointed out that whereas in the case of most industrial operations the customary method of appraising assets emphasizes capitalization of earnings, in the petroleum industry valuation is customarily arrived at in large part by placing a dollar value on estimated reserves of oil and gas. According to his affidavit, Mr. Harrison made individual appraisals of Midstates’ twenty-four major fields, a project which allegedly required eighty-five man days to complete, and accepted the Kravis figures as to scattered leasehold interests after adjusting them to September 30, 1958.
After reducing the present appraised worth of future net income of the properties by twenty-five to thirty per cent in order to
Defendants argue, as noted earlier, that plaintiffs rather than directly attacking the objectivity and fairness of the Harrison report stress the cursory nature of the information given to the stockholders of Midstates of the proposed sale, the precipitate acceptance of the $24,947,610 offer by the directors of Midstates, and the fact that at the time of the offer, which was formally tendered on December 5, 1958, Tennessee Gas had installed directors of its choice on the boards of both the buyer and seller. Indirectly the sale’s figure is brought under heavy attack by comparing it with two other offers allegedly made for the assets of Midstates either of which, according to plaintiffs, if accepted would have netted more for the Midstates stockholders than was paid them in the transaction under attack. Their principal contention is that one of these offers, namely the Tennessee Gas Transmission exchange proposal, when translated into a fair price for the stock of Midstates, clearly discloses that in May of 1958 Tennessee Gas itself placed a substantially higher price on the assets of Midstates than it caused to be offered for them in December of the same year. It is argued, of course, that there has been no showing that there was any appreciable change in the value of the assets of Midstates during the intervening months.
The difficulty with this contention is that an offer to exchange stock with the stockholders of an independent corporation is not the same thing as an offer to buy the assets of such corporation’s subsidiary after consummation of the exchange. More specifically it has been stated by this Court that:
“The worth of any testimony concerning the selling price of shares of stock as a safe reflection of the net value of the corporate assets underlying the stock is of extreme dubiousness.Page 44This was pointed out in Allied Chemical & Dye Corp. v. Steel & Tube Co., 14 Del.Ch. 1, 120 A. 486. See also Bodell v. General Gas & Electric Co., supra [15 Del.Ch. 119, 132 A. 442].” Allaun v. Consolidated Oil Co., 16 Del.Ch. 318, 147 A. 257, 262.
However, it is also settled law in Delaware that when the price to be paid in a sale of corporate assets case is under attack, the question to be decided is what is the value of such assets for sale purposes, selling value having the quality, according to the circumstances of the particular transaction, of being more or less than actual value. While the Harrison affidavit is impressive, it is a professional opinion and no more, the only practical evidence of negotiations between a willing “buyer” and “seller” being those concerned with the stock of Middle States which the corporate defendants say throw no relevant light on the value of Midstates’ assets in December 1958. The appearing defendants go on to point out that in the case of Gropper v. North Central Texas Oil Company, 35 Del.Ch. 198, 114 A.2d 231, the Court relied in large part on expert appraisal data in declining to enjoin a proposed sale of assets. However, • the sale here under attack has long since been consummated and the case is in a final hearing posture. In view of what appears to me to be a bona fide dispute as to value, which I feel cannot be finally resolved on the present record, I shall adopt the procedure followed by the Chancellor after he preliminarily enjoined a proposed sale of assets in Allied Chemical & Dye Corp. v. Steel & Tube Co., supra. Thereafter he caused testimony to be taken on the issue of whether or not the price to be paid was fair and adequate. I propose to adopt a similar course of procedure, and after a conference with counsel shall set a hearing on the issue of the price herein paid. Claims made by plaintiffs as to what was a fair value for the Midstates assets, insofar as they are subject to being properly established in an action such as this, would, of course, be a matter for consideration at such hearing.
In short, unless the corporate defendants can prevail on some theory of ratification or waiver, I see no way other than a trial examination of the evidence to reach a determination of whether or not the price paid for the assets of Midstates can withstand plain
As to alleged ratification, I am not satisfied that the vote of 302.108 minority shares of Midstates in favor of the sale was on the present record effective, knowledgeable ratification under Delaware law. Finally, the receipt and retention by plaintiffs and others of their class of the liquidating dividends tendered on the dissolution of Midstates does not estop them from suing for the difference between the tendered dividends and what they claim they should have received had the assets of Midstates been sold for a fair and adequate price. See Opinion in this case of November 25, 1959, 38 Del.Ch. 572, 156 A.2d 416 and Lebold v. Inland Steel Co., supra.
On notice an order may be submitted denying the pending motions for summary judgment.