Professors Korsmo and Myers have once again lauded the benefits of appraisal litigation and chastised its critics for pressuring the Delaware bar council to reconsider its recent decision not to limit or eliminate appraisal arbitrage. In their latest piece, the authors reaffirm their findings that appraisal cases comprise that rare form of shareholder suit “where the merits actually matter.” They suggest that the emergence of appraisal arbitrage specialists should be “reassuring, not shocking” to the deal community, as it evidences “beneficial specialization” that allows shareholders unfamiliar with the appraisal process to cash out, sometimes at a premium to the merger price, without being forced to accept an undervalued deal or to prosecute appraisal rights for themselves.
As we’ve previously posted, the Corporation Council of the Delaware bar had taken up the question of whether to ban or curtail appraisal arbitrage, and more recently decided to take no such action after determining that the practice had no discernable negative effects on mergers and acquisitions and, if anything, continued to protect shareholder value. See our prior posts here and here. In addition, as we recently noted here, Chief Justice Strine of the Delaware Supreme Court tends to agree with that position and believes that the concern over appraisal arbitrage is overblown. As the Wall Street Journal reported this week, a group of law firms that typically represent parties to M&A deals strongly disagrees with the Council, and has sent a letter to the Council questioning its findings. The headline-grabbing quote from the letter — that appraisal arbitrage is both “unseemly” and “rampant” — challenges the Council’s determination that there has been no recent uptick in frivolous or speculative appraisal litigation. It is not apparent that the letter provides competing statistics to contest the Council’s findings, such as that in 2013, representative litigation occurred in more than 90% of public M&A, while only 17% of the appraisal-eligible transactions resulted in Delaware appraisal litigation. Rather, the letter seems grounded on a policy rationale that the appraisal statute was not intended to enable those who purchase shares after the public announcement of a deal, or at least those who bought after the record date for the vote, to seek appraisal. Given the Delaware courts’ finding to the contrary and their refusal to impose a share-tracing requirement that may impede appraisal rights of stockholders who purchased their shares after the vote, the letter-writers are taking their case to the legislature.
The current Delaware legislative session ends on June 30, so whatever changes, if any, are to be made to the appraisal remedy this year will need to take place before then. We’ll keep you posted.