Conyers Dill & Pearman, a firm whose work we’ve noted before has a further update on Cayman appraisal rights. Examining the over 100 page decision in In the matter of Shanda Games Limited (FSD 14 of 2016, 25 April 2017), Conyers Dill recaps the case, including the valuation approach, discount rate, as well as the Cayman court’s consideration of Delaware law. Of particular interest to U.S. appraisal, Conyers Dill notes that the Cayman court determined that the Cayman appraisal statute and the Delaware statute had similar “core concepts and terms” – and the Cayman court referenced Delaware decisions in its ruling.
** Lowenstein Sandler LLP does not practice in the Cayman Islands. We thank Bernadette Carey of Conyers Dill for bringing this work on Cayman appraisal to our attention and thank the authors at Conyers Dill for their coverage of this area.
The Faculty of Law at the University of Oxford are holding an event on May 12th entitled “Valuation, Growth, and Appraisal Arbitrage” with Professor Richard Booth of Villanova Law School. We’ve previously posted on Professor Booth’s work regarding appraisal. If your company, firm, university, or otherwise is holding an event regarding appraisal, please do feel free to let us know by emailing firstname.lastname@example.org or email@example.com.
This piece by Law360, “Appraisal Actions May Be The Next Frontier For PE Shops,” discusses a range of reactions to the closely watched rulings in the DFC Global and Dell appraisal cases currently on appeal before the Delaware Supreme Court. Some commentators see the appraisal strategy becoming more attractive to private equity funds as the valuation methodologies used by the Chancery Court become more refined and formulaic, while critics write off the increase in appraisal activity as a natural outgrowth of the diminished appeal of fiduciary duty litigation.
This Bloomberg BNA piece, “Dealmakers Eye Safeguards Amid Rising Valuation Challenges,” observes the spike in appraisal activity and queries whether M&A buyers are taking added steps to address appraisal risk.
The ABA Business Law Section, Spring Meeting, shared this presentation, laying out some useful information regarding the Depository Trust & Clearing Corporation. The material is of particular relevance to those interested in appraisal rights; the continuous holder requirement – which requires appraisal seekers to have continuously held their stock from the time of making their appraisal demand through the deal closing – requires a petitioner to overcome procedural hurdles in order to exercise appraisal and make sure their claim is not subject to challenge. This presentation gives an overview of some of the recent case law, including the Dell matter, for those interested in the nuts and bolts of exercising appraisal rights.
Conyers Dill & Pearman, a firm with offices in, among other places, Bermuda and the Cayman Islands, prepared this write-up on the use of appraisal rights in the Cayman Islands. Like Delaware, the Cayman Islands have seen an uptick in shareholders exercising their appraisal rights to seek fair value for their shares. A prior article by Conyers Dill provides extensive background on the availability of appraisal rights in the Cayman Islands; the firm has also written on the principles considered by Cayman courts in determining fair value. While Delaware is the focus of appraisal activity in the United States, there are appraisal issues and opportunities in other states and around the world.
** We thank Bernadette Carey of Conyers Dill for corresponding with us about that firm’s knowledge of Cayman appraisal rights. Lowenstein Sandler LLP does not practice in the Cayman Islands.
Blockchain: The idea of distributed ledger technology – usually associated with “cryptocurrency” like bitcoin – may be coming to the world of appraisal rights in the near future. As reported by Bloomberg BNA, Delaware’s legislature is considering facilitating the use of blockchain technology with respect to share ownership. As recent cases have shown, pursuit of appraisal rights is critically related to an understanding of the actual system of share ownership involving the Depository Trust & Clearing Corporation and intermediaries in the U.S., a process that, for the appraisal claimant, can be fraught with peril. Blockchain is one potential solution to simplify the record keeping of who owns what shares and how they own them. The relevant proposed legislation is available here.
The Financial Times published this critical assessment [$$$] of the DFC Global ruling and of the appraisal arbitrage strategy more generally, observing that the pending DFC Global appeal frames the current debate about what role, if any, merger price should play in appraisal cases.
Last week the Federal Reserve issued another rate hike, just months after its December rate increase. The recent hike has increased the Fed’s discount rate — also known as its primary credit rate — by 0.25%, up to 1.50%. Effective as of March 16, 2017, this will increase the rate of statutory interest in appraisal cases to 6.50%, compounded quarterly, as the appraisal statute sets interest at 5% over the Federal Reserve discount rate.
Cooley LLP highlights that increased appraisals are being factored into mergers. Following up on a previous piece, Cooley LLP notes that appraisal costs can be large, referencing the over $50 million added to the merger price in Dell, and further comments on the rise of appraisal claims, which Cooley calculates as a 267% increase from 2012 to 2016. We’ve posted previously on the uptick in appraisal filings, and how the August 2016 amendments may further increase filings, as well as what this means for investors interested in the strategy.