The Corporation Council of the Delaware bar released proposed amendments to Delaware’s General Corporation Law last week. Among the various proposals, ranging from fee-shift provisions to forum-selection clauses in corporate bylaws, the committee proposed two changes to Delaware’s statutory appraisal remedy: first, to bar appraisals by shareholders holding 1% or less of the outstanding stock of a public company if the value of their shares is $1 million or less as based on the merger price; and second, to allow acquiring companies to stop the statutory interest on at least a portion of the disputed amount by permitting them to prepay a cash amount, in whatever amount they may choose. The proposed amendments to the appraisal statute are here, and the Corporate Council’s white paper explaining the amendments is here.
The legislature has not yet approved or even considered these proposals; we’ll post about any developments in that regard. In the meantime, the first such proposal will not likely have much of a practical impact, as there are not too many petitions, if any, brought by stockholders with such a small position. After all, a holder of a $1 million stake would not have sufficient economic incentive to bring an appraisal petition in the first place, given the expert and other litigation costs incurred in pursuing such a claim. It presents a limitation on such a rare class of cases so that the proposal will have precious little consequence. But that does not mean the legislature will readily take up the measure. There may be a concern among some legislators that once an effort is underway to eliminate “small” claims, future proposed amendments could take aim at cutting off larger claims. As to the second proposed amendment, the option of allowing respondent companies to make cash prepayments might have interesting results; it could encourage companies to prepay significant amounts, even up to the full merger price, just to stop the interest clock, which in turn could actually encourage more appraisal claims by inviting challenges from otherwise-reluctant stockholders concerned about having their capital locked up during the pendency of the appraisal proceeding.
Significantly, the proposals do not include an amendment to eliminate or limit appraisal arbitrage; we’ll post more about that issue in the coming days.