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Partnership Valuation Rejected as Unfair by Delaware Chancery Court

Updated: May 8


The Delaware Chancery Court has recently held that AT&T breached its fiduciary duties in a coordinated action involving 13 partnerships, as it effectuated a freeze-out of minority shareholders through an unfair process and by paying an unfair price. This case highlights the critical importance of ensuring that partnership valuations are carried out in a fair and unbiased manner. As a leading global professional services firm, Eton Venture Services is committed to upholding the highest standards of integrity, objectivity, and independence in all valuation engagements.

This article examines the key factors that led to the Court's ruling against AT&T, including the use of a biased valuation firm, the lack of procedural safeguards to ensure fairness, and the rejection of the expert witness testimony on the grounds of being unpersuasive. We also discuss the implications of the ruling and provide guidance on how to conduct valuations that are fair, transparent, and compliant with fiduciary duties.

Background and Context

The case in question involved a coordinated action involving 13 partnerships in which AT&T sought to freeze out minority shareholders. AT&T bore the burden of proving that the freeze-out was entirely fair to the minority partners, a burden it ultimately failed to satisfy. Among the factors that contributed to the Court's ruling, the use of a valuation firm with close ties to AT&T, and the undue influence of internal AT&T personnel on the valuation process, were particularly damning.

The Valuation Firm's Relationship with AT&T

One significant issue in this case was the long-standing relationship between the lead partner of the valuation firm and AT&T. This connection called into question the objectivity and independence of the valuation. The court found that this relationship tainted the fairness of the valuation process, as it created a clear conflict of interest. In such situations, it is crucial to engage an independent and impartial valuation firm to ensure the credibility of the valuation and maintain the trust of all parties involved.

Lack of Procedural Safeguards

The court also found that AT&T failed to employ any procedures that insured fairness to the minority partners. The absence of procedural safeguards, such as an independent committee of directors, a majority-of-the-minority vote, or a robust market check, can create an environment where conflicts of interest and self-dealing are more likely to occur. To mitigate these risks, it is essential to establish and adhere to procedures that promote fairness, transparency, and accountability.

Expert Witness Testimony Rejected

In its defense, AT&T relied on the testimony of an expert witness to demonstrate that the deal was fair. However, the court rejected the expert's opinion, noting that the valuation methods employed were unpersuasive and highlighting several indicia of unfairness. Among these was the fact that the transaction was self-interested. This serves as a reminder of the importance of using well-established, credible valuation methodologies and of ensuring that expert witnesses are well-versed in those methods.

Implications of the Ruling

The court's ruling underscores the importance of ensuring that partnership valuations are conducted in a fair and unbiased manner. Companies must be mindful of their fiduciary duties and take the necessary steps to guarantee the fairness and objectivity of their valuation processes. Failure to do so may lead to costly legal battles and reputational damage, as demonstrated by AT&T's experience in this case.

Guidance for Fair and Compliant Valuations

To minimize the risk of unfair valuations and potential legal challenges, we recommend the following best practices:

  1. Engage an Independent Valuation Firm: To maintain the credibility of the valuation process, it is crucial to engage a valuation firm with no existing ties to the company or its executives.

  2. Establish Procedural Safeguards: Implement procedures that promote fairness, transparency, and accountability, such as the formation of an independent committee of directors, requiring a majority-of-the-minority vote, or conducting a robust market check.

  3. Use Well-Established Valuation Methodologies: Employ credible, widely accepted valuation methodologies to ensure that the resulting valuation is defensible and persuasive. This may include discounted cash flow analysis, comparable company analysis, or precedent transaction analysis.

  4. Ensure Expert Witness Competence: If expert witness testimony is required, ensure that the chosen expert is well-versed in the appropriate valuation methodologies and able to provide a compelling, well-reasoned opinion.

  5. Maintain Documentation: Retain comprehensive documentation of the valuation process, including the rationale behind the chosen valuation methodology, key assumptions, and supporting data. This documentation may be critical in the event of a legal challenge.

  6. Regularly Review Valuation Policies and Procedures: Periodically assess and update valuation policies and procedures to ensure they remain consistent with best practices and continue to promote fairness, objectivity, and compliance with fiduciary duties.


The Delaware Chancery Court's ruling against AT&T highlights the importance of conducting fair and unbiased partnership valuations. By engaging an independent valuation firm, establishing procedural safeguards, employing well-established valuation methodologies, and following other best practices, companies can minimize the risk of legal challenges and ensure compliance with their fiduciary duties. As a trusted partner to businesses around the world, Eton Venture Services is committed to upholding the highest standards of integrity, objectivity, and independence in all valuation engagements.

How can Eton help?

Don't let your business fall victim to the same pitfalls as AT&T. Trust Eton Venture Services to guide you through a fair and unbiased partnership valuation process. Our team of dedicated professionals is committed to upholding the highest standards of integrity, objectivity, and independence. With our extensive experience and expertise in valuation methodologies, we can help you navigate complex transactions and comply with fiduciary duties.

Partner with Eton Venture Services today and safeguard your business from costly legal battles and reputational damage. Contact us now to learn more about our valuation services and how we can help your business stay ahead of potential challenges. Together, we can pave the way for a successful, compliant, and fair partnership valuation experience. Contact Eton today.

See In re Cellular Telephone Partnership Litigation, C.A. No. 6885-VCL (Del. Ch. March 9, 2022)

Eton's unparalleled service and expertise can deliver the valuation precision you or your business need

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