Athlon Sports Communications, Inc. v. Stephen C. Duggan
M2015-02222-COA-R3-CV
| Tenn. Ct. App. | Oct 17, 2016Background
- Athlon, a privately held sports-media publisher, experienced severe financial decline after 2008 and undertook a 2010 turnaround plan led by Stephen Duggan, who bought ~15% of preferred stock for $1.5M.
- Duggan’s Sports Insert initiative increased circulation but failed to generate sufficient advertising revenue; Athlon reported large losses 2010–2012 and sold its building to meet obligations.
- In early 2012 Athlon’s board obtained a valuation from 2nd Generation finding fair value "$NIL" and approved a merger plan paying dissenting minority shareholders $0.10 per share; defendants demanded ~$6.18 per share.
- Athlon filed for judicial appraisal under Tenn. Code Ann. § 48-23-301 et seq.; a bench trial was held on competing expert valuations in 2015.
- The trial court applied the Delaware Block Method, accredited Athlon’s expert (Collins), rejected defendants’ expert (d’Almeida), and found fair value was $0.10 per share as of the merger date (Aug. 10, 2012).
- On appeal, defendants argued (1) the Delaware Block Method is inappropriate/antiquated for a company pursuing a new venture and (2) the trial court misapplied that method; the Court of Appeals affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Delaware Block Method may be used to determine fair value | Athlon: Delaware Block is Tennessee precedent and appropriate; court may weight elements by company facts | Defs: Method focuses on past performance and is ill-suited for a company pursuing a new business model; courts should allow forward-looking methods | Court: Delaware Block remains Tennessee baseline; may be applied flexibly to account for company-specific facts; affirmed use |
| Whether trial court misapplied the Delaware Block Method in valuing Athlon | Athlon: Trial court reasonably credited its expert, rejected speculative forecasts, and correctly gave minimal value to intangibles | Defs: Trial court ignored Athlon’s internal forecasts and comparable indicators that supported higher value | Court: Findings on credibility, industry decline, insolvency risk, and expert analyses were supported by the evidence; affirmed $0.10 valuation |
Key Cases Cited
- Blasingame v. American Materials, Inc., 654 S.W.2d 659 (Tenn. 1983) (adopts the Delaware Block Method for dissenting-stockholder valuation)
- Elk Yarn Mills v. 514 Shares of Com. Stock, 742 S.W.2d 638 (Tenn. Ct. App. 1987) (discusses weighting market, asset, and earnings approaches)
- Genesco, Inc. v. Scolaro, 871 S.W.2d 487 (Tenn. Ct. App. 1993) (market value may be disregarded where no reliable trading exists)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (Delaware Supreme Court endorses a more flexible approach to valuation techniques beyond the rigid Delaware Block framework)