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.
In a recent podcast, the Columbia Law School BlueSky Blog features Delaware Vice Chancellor Laster – whose appraisal decisions we have covered repeatedly – discussing the appraisal remedy. While the entire podcast is certainly worth a listen, some important topics include the history of appraisal (~1:30); when markets may depart from fair value (~5:50); how appraisal may act as a reserve price (~9:30); the discovery burden in appraisal (~14:20); interest rates and the relevance of interest (~21:30); how to determine fair value (~23:30); and the future of appraisal (~29:00).
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.