In a piece published by BreakingViews (a Reuters site), “Singing Appraisals” author Reynolds Holding talks about the benefits of the appraisal remedy and how it can be a “useful check on unfair transactions.” We’ve posted previously on the importance of the appraisal remedy.
Professor Guhan Subramanian of the Harvard Business School, who was one of the Dell stockholders’ experts in the Dell appraisal case focused on the M&A deal process, has developed an ostensive “middle ground” between the competing approaches advanced by the respective amicus briefs filed by some two dozen law and economics professors in the DFC Global appeal.
In his February 6, 2017 essay, “Using the Deal Price for Determining ‘Fair Value’ in Appraisal Proceedings,” Professor Subramanian has proposed that courts adopt a presumption that the merger price represents fair value in an appraisal proceeding where the deal process involved “an adequate market canvass, meaningful price discovery, and an arms-length negotiation.” And where the deal process lacks these features, he believes that deal price should receive no weight whatsoever. His suggested “synthesizing principle” is a response to what he believes to be an increase in perceived appraisal risk since the Dell appraisal ruling in May 2016.
Further to our posts about the DFC Global appeal, today the Delaware Supreme Court granted the February 3 motion by the Law & Economics Professors arguing against the adoption of a presumption requiring chancellors to defer to merger price in all M&A deals resulting from an apparently robust auction process. The Supreme Court is now prepared to consider the competing amici briefs filed by both groups of academics who are respectively supporting the opposing parties in the case; in an earlier post today we shared this summary and assessment of the arguments in those competing amici briefs.
Further to our recent post about the newest amicus brief offered up to the Delaware Supreme Court — arguing against the adoption of a merger price rule in appraisal cases — the Business Law Prof Blog posted this balanced assessment of the competing amici briefs and highlighted their key takeaways. Quoting in turn to the Chancery Daily newsletter, the post thus characterizes the amicus matchup: “By WWE standards it may be a cage match of flyweight proportions, but by Delaware corporate law standards, a can of cerebral whoopass is now deemed open.”
Further to our prior posts on DFC Global’s appeal to the Delaware Supreme Court, a new group of law and economics professors moved the Court on Friday to consider their brief rebutting the amicus brief previously filed in support of DFC Global’s appeal; the prior brief argued for instituting a new rule requiring deference to the merger price in appraisal cases where the court is satisfied that a sufficiently robust M&A auction process took place. In the February 3 filing, the new group of law and economics professors asked the Supreme Court to allow them to file their brief supporting affirmation of the trial court’s decision awarding stockholders an appraised value at a premium above the merger price. The new filing argues that deference to a merger price rule in appraisal cases is unwarranted, inefficient, and contrary to the appraisal statute itself and the Delaware case law, regardless of how carefully crafted the preconditions for such a rule may be.
** This law firm was counsel of record on the brief discussed in this post.
This article by Stout Risius Ross surveys all appraisal rulings since 2010 and identifies certain key metrics in those decisions, including the court’s valuation methodology, whether an auction or go-shop was included in the M&A transaction, and the mean and median premium over merger price resulting from those awards.
Last month we wrote about the Lender Processing case, which ultimately awarded deal price and contained an instructive survey of recent appraisal law. For another view of this case, see the January 11, 2017 post on Harvard Corporate Governance.
We have posted before about the amicus brief that a collection of law professors has asked to put before the Delaware Supreme Court as it hears the DFC Global appeal. On Friday, the Supreme Court granted their request and will consider their submission advocating that the chancery courts should defer to the merger price when reached as a result of a robust, pristine M&A auction. This ruling was made despite the opposition voiced by the DFC Global stockholders defending the lower court’s decision to award them a premium to the merger price. The Court found that the professors may be able to provide it with some “unique supplemental assistance” in this case, which involved a question of “general public importance.”
In a new post by the Harvard Law School Forum on Corporate Governance and Financial Regulation, Professor Albert Choi (Virginia Law School) and Professor Eric Talley (Columbia Law School) present their new working paper, which asks how best to measure “fair value” in an appraisal proceeding.
Applying principles of game theory and auction design, the authors show that as a general matter, setting the appraised value at merger price (using a so-called MP rule) “depress both acquisition prices and target shareholders’ expected welfare relative to both an optimal appraisal rule and several other plausible alternatives.” The authors argue that the MP rule is the functional equivalent of nullifying the appraisal right altogether.
Law360 has provided some Delaware Chancery Cases to Watch in 2017 [$$$], highlighting the DFC Global case, which we’ve blogged about previously. The Law360 commentary, like ours, notes that this will be an opportunity for the Delaware Supreme Court to weigh in on the factors relevant to appraisal and will be a closely watched decision.