Kendall Hoyd v. Trussway Holdings, LLC

CourtCourt of Chancery of Delaware
DecidedFebruary 28, 2019
DocketCA 2017-0260-SG
StatusPublished

This text of Kendall Hoyd v. Trussway Holdings, LLC (Kendall Hoyd v. Trussway Holdings, LLC) is published on Counsel Stack Legal Research, covering Court of Chancery of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Kendall Hoyd v. Trussway Holdings, LLC, (Del. Ct. App. 2019).

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

KENDALL HOYD and SILVER SPUR ) CAPITAL PARTNERS, LP, ) ) ) Petitioners, ) ) ) v. ) C.A. No. 2017-0260-SG ) ) TRUSSWAY HOLDINGS, LLC, ) ) ) Respondent. )

MEMORANDUM OPINION

Date Submitted: November 12, 2018 Date Decided: February 28, 2019

Thomas A. Uebler and Kerry M. Porter, of MCCOLLOM D’EMILIO SMITH UEBLER LLC, Wilmington, Delaware, Attorneys for Petitioner.

Michael F. Bonkowski, Nicholas J. Brannick, G. David Dean, and Bradley P. Lehman, of COLE SCHOTZ P.C., Wilmington, Delaware, Attorneys for Respondent.

GLASSCOCK, Vice Chancellor This is an appraisal action arising from the conversion of a corporation,

Trussway Holdings, Inc. (“Trussway”) into an LLC via merger. The Petitioner is a

former stockholder of Trussway.1 The parties agree as to the value of the corporate

assets and liabilities, with the exception of the value of a wholly-owned subsidiary

of Trussway. Valuation of that entity presents a rather straightforward matter of

corporate valuation, with a limited set of issues, although those issues have been

hotly contested by the parties. 2 I find that a contemporaneous-but-unconsummated

sales process provides no meaningful evidence of value, and that the Petitioner’s

proposed “comparable” companies are not sufficiently comparable to support a

valuation; therefore, I rely on a discounted cash flow analysis to determine value,

aided by the reports and testimony of the proffered experts. Adding the value of the

company’s subsidiary to its agreed-to assets and subtracting its agreed-to liabilities,

divided by the number of shares outstanding, I find the value of Trussway to be

$236.52 per share at the time of the merger. My reasoning follows a brief statement

of the facts, below.

1 Two Petitioners brought this action, but Petitioner Kendall Hoyd reached a settlement with Trussway before trial. 2 In briefing, the Respondent at one point refers to the Petitioner’s argument as “salacious.” Resp’t’s Post-Trial Answering Br., at 1. By this, I assume from context, the Respondent means to say the Petitioner’s argument is exaggerated, histrionic or defamatory. I have seen a number of examples of such usage in recent years; nonetheless, this does not comport with my understanding of the term “salacious.” See Salacious, Merriam-Webster’s Third New International Dictionary (3d ed. 2002). Such things are, of course, entirely a matter of taste; as for me, I found nothing salacious in the briefing, at all. I. BACKGROUND

A. The Parties

Petitioner Silver Spur Capital Partners, L.P. (“Silver Spur”) and former

Petitioner Kendall Hoyd were the only minority stockholders of Trussway Holdings,

Inc. Both sought appraisal of their shares. During the course of the litigation, Hoyd

and the Respondent reached a settlement, leaving Silver Spur as the sole Petitioner

seeking appraisal. 3 On the date of the merger, Highland Select Equity Fund, L.P.

owned 577,796 of the 605,956 outstanding shares of Trussway, aggregating to

95.35% of the company’s stock.4 Of the roughly 5% of stock remaining, Hoyd

owned 13,432 shares and Silver Spur owned 3,465 shares. 5

Respondent Trussway Holdings, LLC is a Delaware limited liability company

with a principal place of business in Houston, Texas. 6 Prior to the merger that

prompted the Petitioners here to seek appraisal, the Respondent’s predecessor,

Trussway Holdings, Inc., had one wholly-owned subsidiary, Trussway Industries,

Inc. (“TII”).7 It also owned investments in two companies, Targa and Tandem,

which were not publicly traded, and held publicly-traded stock in Building Materials

3 Pre-Trial Stip. and Order, at 2. 4 Id. at 3; JX 71, at 77. 5 JX 71, at 77. 6 Rep’t’s Pre-Trial Br., at 7–8. 7 JX 103. 2 Holding Corporation.8 The subsidiary, TII, itself had two wholly-owned

subsidiaries, Trussway Manufacturing, Inc., and Trussway Construction, Inc. 9

Under this arrangement, TII was the leading manufacturer of pre-fabricated trusses

and related components in the multi-family housing market. 10 TII operated six

manufacturing facilities in the United States and had approximately 930

employees.11

B. The Merger

On July 27, 2017, TII engaged Moelis & Company as its investment banker

for purposes of a sale of TII. 12 Moelis concluded that TII’s enterprise value could

range from $202 million to $298 million. 13 Moelis contacted 76 parties, of whom

27 executed non-disclosure agreements and received TII’s confidential information

presentation. 14 Ultimately, seven parties expressed interest by October 21, 2016. 15

In November 2016, TII management conducted presentations with the seven

interested parties. 16 Included in the presentation materials were pre-merger

8 JX 92, Moore July 10, 2018 Dep., at 6:8–7:8, 16:13–18:7; JX 102, Moore Aug. 16, 2018 Dep., at 167:15–17; JX 94, at n.174. 9 JX 103. 10 Resp’t’s Pre-Trial Br., at 8; JX 43, at 4. 11 JX 43, at 5. 12 JX 27. 13 JX 23, at 22. 14 JX 34. 15 Id. 16 See generally JX 43; JX 44. 3 projections created by TII management (the “Project Point Projections”).17 These

were nine-year projections, from 2017 to 2025.18 In contrast with less-optimistic,

internal management projections made in 2015 and 2016,19 the Project Point

Projections forecasted that TII revenue would be $218.2 million in 2016, that it

would grow to $235.9 million in 2017, and that thereafter it would grow anywhere

from 2.2% to 14.9% annually, through 2025.20 Nevertheless, these “numbers were

brought down a couple of times, at least once, during the [sales] process because the

business wasn’t performing as was anticipated.” 21

The Project Point Projections also included four categories of strategic

initiatives; projected costs, revenue, and EBITDA from those initiatives were added

to a base case. These initiatives were building a plant in Nevada or Arizona to sell

their products to the Las Vegas and Southern California markets; 22 expanding the

sale of other products (besides trusses, such as wall panels); 23 expanding the sale of

products to the single-family market;24 and gaining additional market share through

17 JX 43, at 41. 18 Id. 19 2015 projections forecasted that TII’s revenue would increase from $196 million in 2015 to $204 million in 2016, but would then decline each year to reach $132.76 in 2019. JX 9, at 5. According to one board member, this decrease in revenue was due to projected declines in multi- family housing starts. JX 102, Moore Aug. 16, 2018 Dep., at 181:14–20. A set of five-year projections developed in 2016 also forecasted that TII’s revenue would decline through 2020. JX 17, at 4. 20 JX 43, at 41. 21 JX 101, Sellman Dep., at 41:4–7. Sellman stated that this “happens often.” Id. at 41:7. 22 JX 43, at 47. 23 Id. at 46. 24 Id. at 37. 4 sales to new segments, such as senior living, stores and restaurants, hotels and

motels, offices, banks, and dormitories.25 These four initiatives are referred to

collectively as “the strategic initiatives.” The strategic initiatives had the effect of

increasing TII’s projected revenue and EBITDA; by 2025, they accounted for 39%

of revenue and 43% of EBITDA in the Project Point Projections.26

On December 9, 2016, Trussway’s Board of Directors approved an

Agreement and Plan of Merger between Trussway and TW Merger Sub, Inc. 27 As a

result of this plan, Trussway merged into TW Merger Sub, with Trussway LLC

being the surviving entity. 28 In essence, Trussway and its subsidiaries would be

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