Sometimes!  Appraisal is almost always an issue for the shareholders of the target, or seller, corporation.  But, in very rare instances, the shareholders of the acquiring corporation may have appraisal rights.  Enter the 2005 case of Proctor & Gamble and Gillette.  In 2005, Procter & Gamble (P&G) announced a multibillion dollar merger with Gillette, to be consummated a stock-for-stock reverse triangular merger.  A P&G merger sub would merge into Gillette, giving P&G control of Gillette.   (Regular readers of this blog may recall that a similar structure was used recently by Dr. Pepper, in a case where the Court found no appraisal rights.)

For the P&G merger – Gillette was  Delaware corporation.  And under Delaware law, stock-for-stock mergers (nevermind reverse triangular stock-for-stock mergers) lack appraisal rights.  But under Ohio law, which governed P&G, a Ohio corporation, P&G shareholders would have appraisal rights.  See P&G’s SEC filing.  Under Ohio law, a P&G shareholder dissenting from the merger would be entitled to receive fair cash value of their shares – even though P&G would be the surviving company.  The final result was the extremely odd event that the seller shareholders lacked appraisal rights, while the buyer shareholders had appraisal rights.  The parties took this account in their deal, providing that the deal was conditioned on a 5% ‘blow’ provision – but as to the buyers shareholders exercising appraisal.

The lesson of the P&G case is that when dealing with non-Delaware appraisal, it is especially important for practitioners and investors to not assume the Delaware regime applies.  Regimes outside Delaware, especially foreign regimes, may have rules allowing stock-for-stock appraisal; or, stranger still, appraisal for an acquirer’s shareholders.  Every merger and every situation needs to be evaluated.

A recurring topic in appraisal litigation (and merger litigation more generally) is that potential buyers, and in particular those who are most engaged with the company get a “look under the hood” that general investors do not.  But this simplistic analogy may actually understate the informational advantage of a buyer compared to the market at large.  Shareholders often are left in the dark – until a merger is announced, often as a fait accompli – as to possible conflicts, as to side deals made between a buyer and the board, or as to other potential buyers the board has either not considered or cast aside.

One answer to the informational asymmetry, proposed in “A Governance Solution to Prevent the Destruction of Shareholder Value in M&A Transactions” by Stephen Weiss, is to appoint an independent monitor, who acts on behalf of the shareholders themselves, able to observe and report on corporate governance and Board actions.  While one could consider the appointment of a monitor in a number of scenarios, we focus on its application to a merger.  The article suggests that an independent monitor (defined by a lack of relationship with the Board, the buyer, and the company) could both protect shareholders against Board actions against their interest, but also protect Boards against merger-related litigation challenging parts of the merger.  In the context of appraisal, an independent monitor could act to review the deal process and make (effectively live) comment on whether the deal process is Dell-compliant.

A monitor is one of many potential ideas being floated to alter the merger process (such as blockchain solutions, which we have covered before), seeking to make the process fairer and more efficient.

From, observing that the decision can be read as a pretty direct rebuke to the lower Court, and focusing on the Delaware Supreme Court’s finding that the lower court decision appeared “results-oriented.”

From Bloomberg Law, arguing that Aruba harms appraisal arbitrage (despite rejecting unaffected stock price), but concluding that “ . . . the court’s decision, which narrowly applied to the facts in the Aruba case, raises questions because it doesn’t settle the dispute on how much weight to give the market price” and “. . . raises questions about when and where to use them, or what kind of evidence is needed[.]”

From Business LawProf Blog, discussing how Aruba fits with Dell and DFC in how one figures out what the real purpose of the remedy is.

From Reuters, on how Aruba may hurt appraisal arbitrage.

“Appraisal after Dell” by Professor Guhan Subramanian has been published in the book “The Corporate Contract in Changing Times: Is the Law Keeping up?”  While the book covers a number of topics in recent corporate law, including challenges to Delaware primacy, activism, and disclosure-only settlements with respect to mergers, it also covers the oft-changing world of appraisal via Professor Subramanian’s article.  In “Appraisal after Dell” the Professor argues that Dell and other recent cases have swung the appraisal “pendulum” towards deal price.  Of perhaps more interest to practitioners and investors are the implications the Professor sees from Dell and recent cases: the creation of a “tactical choice” for sell-side boards to either have a “good” (i.e., Dell compliant) deal process, or the added risk of post-closing appraisal challenges – with the dissemination of Dell-compliant deal processes a slow process unless appraisal remains a meaningful remedy.  The Professor also examines the implications of the “who decides” aspect of the Dell decision – arguing that Chancery Court judges will seek to appeal-proof their decisions by finding possibly false clarity in otherwise shades-of-grey deal processes.  We note that the Professor was the expert for Dell in their appraisal case and has written on this topic before.

The article (and book more generally) set out a useful recounting of the potential questions remaining post-Dell.  But with the caselaw changing as fast as it is, no doubt yet additional academic commentary will be needed in the future.

JDSupra has published an article discussing recent valuation issues in five states: Louisiana, Georgia, West Virginia, Alaska, and Pennsylvania.

While each decision covered is worth discussion in its own right, a comparative analysis of this kind lends itself to highlighting the similarities and differences between the states.  In particular, how (and if) each state applies various discounts, including discounts for lack of marketability and minority discounts varies.  Thus, as an example, the Louisiana case highlighted explicitly disallowed marketability and minority discounts (commensurate with Louisiana law); in the West Virginia case, a juries rejection of marketability and minority discounts was sustained, but the door was at least open to a jury adopting such discounts in another case.  And in the Georgia case, it was the wording of the contract, along with the policy expressed in Georgia’s appraisal regime, that led the Court to uphold a decision providing no minority discount in that case.

Whether to apply minority, marketability, or similar discounts in an appraisal valuation is a critical topic in numerous appraisal jurisdictions – including ones we have covered previously like Iowa, Arizona, and the Cayman Islands.  Analysis of discounts can sometimes receive short-shrift in the broader world of appraisal as Delaware does not allow for a minority discount in appraisal.  Thus, we are often left looking to other states (and sometimes foreign jurisdictions) to understand how different courts treat such discounts in an appraisal proceeding.

In late March, Michigan Law hosted Professor Hidefusa Iida to discuss appraisal rights in Japan.  Professor Iida previously published on appraisal rights in Japan, including in a 2014 article “Reappraising the Role of Appraisal Remedy.” The basics of Japanese appraisal, from Professor Iida’s article and this analysis, are similar to Delaware. Shareholders who dissent from certain major corporate actions, in particular, mergers, can – as in Delaware – demand ‘appraisal’ of their shares, meaning that a Court will fix the “fair value” of the shares. Indeed, before appraisal rights in Delaware became a regular fixture of investor protection, some academics were already looking to Japan as a pro-investor forum, citing appraisal rights as one key facetOther commentary has also viewed the Japanese appraisal remedy as a critical minority shareholder protection (or weapon, as the verbiage may be).

We will continue to cover Japanese appraisal as further items develop.