F.Supp. 793 and 304 F.Supp. 1136 (D.Conn.1969).
When the merger was originally approved in 1966, in hearings before the I.C.C. the median price projected of Penn Central Stock was $ 87.50. By the time of the conveyance of the New Haven assets on December 31, 1968, the price had declined to an average of about $ 69.50 per share, see : New Haven Inclusion Cases, 399 U.S. at 485, 90 S. Ct. 2054, 26 L. Ed. 2d 691, but all concerned apparently felt that the long-range benefits of the merger would improve the market. Accordingly, in authorizing the New Haven Trustee to accept 950,000 shares of Penn Central stock as representing payment of $ 83,125,000 of the purchase price, the Connecticut court imposed on Penn Central an underwriting plan which in effect required Penn Central to guarantee that the stock would reach $ 87.50 per share by February 1, 1978; otherwise, Penn Central would pay the New Haven Trustee the difference in cash. See 304 F.Supp. at 808-810.
Appeals from the orders of both courts were pending before the Supreme Court when the Penn Central went into bankruptcy. Eight days later, on June 29, 1970, the Supreme Court decided the pending appeals. New Haven Inclusion Cases, 399 U.S. 392, 90 S. Ct. 2054, 26 L. Ed. 2d 691 (1970). The Court (a) affirmed the New Haven reorganization court's determination that the correct price for the New Haven assets was $ 174,000,000; (b) vacated that part of the reorganization court's judgment which set up the underwriting plan; and (c) directed the merger court to abstain "pending the further proceedings before the I.C.C. and the reviewing courts under Section 77 of the Bankruptcy Act."
As can be seen from the foregoing recital, there were two separate issues involved throughout these proceedings: the value of the New Haven assets, and the value of the consideration to be furnished by Penn Central. When the I.C.C. and the lower courts considered the case, the value of the assets was decreasing, even negative; whereas the value of the consideration was thought to be likely to increase. By discarding going-concern, or income-producing, approaches, and choosing a liquidation hypothesis, the reorganization court established a floor under the declining asset value. And its underwriting provision was designed to insure that the consideration value would correspond to the price thus fixed.
By the time the Supreme Court decided the case, it was apparent that the underwriting scheme was no longer feasible.
II. The Issues
Before attempting to discuss the precise extent of this Court's jurisdiction and the desirability vel non of its exercise, it may be helpful to review the issues which, in consequence of the Supreme Court's decision, remain open for further consideration. Unfortunately, even this subject is not free from doubt.
It is clear that the value of the New Haven assets which were conveyed to Penn Central as of December 31, 1968, has been finally and unalterably fixed at $ 174,000,000. If the "package" of consideration previously furnished by Penn Central were to be valued as of the time of payment and treated as an accomplished fact, then the only remaining issue would be the form of payment of the $ 28,000,000 balance. But the Court has expressly stated that, in the light of intervening events, the underwriting scheme which was designed to produce a value of $ 87.50 per share of the common stock "may be wholly unrealistic." From this it can be argued, either that the Court intended that only the underwriting scheme should be reconsidered, or that the true value of the "package" as of December 31, 1968, should be reappraised in the light of subsequent events, or that the entire "package" should be reevaluated as of present day values. There is language in the Court's opinion which can be construed as lending support to each of these possible constructions.
The Court stated, 399 U.S. 392, at p. 489, 90 S. Ct. 2054, at p. 2108:
"Accordingly, we set aside the order of the Connecticut District Court insofar as it determines that an intrinsic value of $ 87.50 inheres in the Penn Central common stock and implements an underwriting plan to secure payment of that sum. Further proceedings before the Commission and the appropriate federal courts will be necessary to determine the form that Penn Central's consideration to New Haven should properly take and the status of the New Haven estate as a shareholder or creditor of Penn Central." [emphasis added]