The forthcoming article on appraisal arbitration by Professors Korsmo and Myers is rich with data confirming the sophistication of the new breed of appraisal rights petitioners. (A previous post linked to graphs demonstrating the recent sharp increase in appraisal petitions and the spike in the dollars at play in appraisal cases.) We wanted to highlight some more of that data here.
Two metrics merit attention. The first is a graph representing the value of shares in Delaware appraisal actions held by “repeat players.” (view here) This shift from “one-off” filings by aggrieved shareholders to multiple petitions filed by single entities has been driven almost entirely by investment funds. Professors Korsmo and Myers hypothesize, and the data bears out, that these investors are increasingly looking to Delaware appraisal litigation as a considered investment strategy. Indeed, as the article states, “[t]he institutions that are beginning to specialize in appraisal . . . are among the most sophisticated financial entities in the United States.”
Another data point demonstrates that these sophisticated entities are filing their petitions much more quickly. (view here) Under Delaware law, shareholders dissenting from a merger have 120 days after the effective date to bring their appraisal petition. The professors suggest that prior to 2010, petitioners generally took that entire period to negotiate a settlement before filing. From 2011 onward, however, the professors believe that dissenting shareholders appear to be foregoing this initial round of settlement discussions and filing their appraisal petitions immediately. Another interpretation of this data is that this increase in the pace of filings may result from the fact that historically stockholders often gave pre-closing notice to the target of their intent to exercise appraisal rights simply as a means to preserve their optionality and buy time to consider a challenge. Now, however, as funds and other dissenters have become more deliberate in their strategy to follow through with an appraisal proceeding, they don’t need extended time to consider their options and thus tend to file a petition more promptly post-closing to follow through with their predetermined litigation plan.