In one closely watched case decided two weeks ago, the focus was on the technology company, Dell, which was taken private by founder Michael Dell in 2013. Some investors believed they had been short-changed, so they challenged the price in what has become known as an “appraisal” case.

Once an obscure quirk of Delaware law, appraisal has become a key remedy for shareholders and a tool for opportunistic hedge funds. When a company is sold for cash, unhappy stockholders can exercise so-called “dissenters” rights and ask a judge to assign a new value for their shares. This court-determined price can be higher than the deal price or lower. But, in many cases, it turns out to be the same because judges opt to defer to the deal.

It can be reached in a less rounded way, however.

When bankers advise company boards about what would constitute an acceptable buyout price, they often present a series of different calculations on a grid. A premiums analysis shows how much recent deals exceeded market trading prices. A “capitalised” earnings calculation applies a multiplication factor to an earnings forecast. Another approach involves adding up future cash flows and discounting them to reach a fair value today. For bankers, valuation is the painting of an intricate mosaic.

Alas, the Delaware court is often less nuanced. Although the appraisal statute has been interpreted to allow judges to choose whatever valuation method(s) they deem appropriate, in virtually all recent cases — including Dell — the court has relied solely on discounted cash flow. “The DCF valuation methodology has featured prominently [because it] merits the greatest confidence within the financial community,” the court has said. DCF also happens to be the favoured approach of scholars because of its theoretical elegance: an asset’s value should strictly be equal to the net cash it generates.

In the Dell dispute, the company’s expert witness was noted Columbia Business School economist Glenn Hubbard, best known for advising Republican politicians. Dell’s shareholders, seeking a higher price, retained Bradford Cornell of Caltech, the university that is home to Nasa’s rocket laboratory. They are among around a dozen valuation experts who can bill $1,000 per hour for their services, and work as affiliates of litigation consultancies — the best known being Analysis Group, Charles River Associates, Compass Lexecon and NERA. They are not formal employees but get to use the firms’ resources — notably an army of spreadsheet jockeys to do the supporting maths.

Despite the Delaware court’s confidence in DCF, the Dell expert’s use of it proved contentious. Dr Hubbard’s DCF, for the Dell side, computed that the company was worth $12.68 per share, suggesting that the $13.75 per share buyout price was a magnificent win for shareholders. Mr. Cornell, for the dissenters, concluded Dell was worth a wild $28.61 per share. As the judge wryly noted, this implied a $28bn aggregate valuation difference on a buyout worth only $25bn. Still, the judge thought the differences on their inputs to the calculations — profits, debt and equity levels, discount rates, cash adjustments — were all arrived at in good faith. So he cherry-picked the bits of each professor’s work that he found most defensible, to reach a valuation of $17.62 per share.

It seems the court is aware of the peril in this approach, writing in an earlier case: “The value of a corporation is not a point on a line, but a range of reasonable values, and the judge’s task is to assign one particular value within this range as the most reasonable value in light of all the relevant evidence and based on considerations of fairness.”

Still, such humility looks hollow when expert witnesses and judges use a single, fraught, technique. Bankers with their more circumspect, holistic approach to valuation offer a lesson to the professors and the courts who rely upon them.

sujeet.indap@ft.com