January 2017

We have posted before about the amicus brief that a collection of law professors has asked to put before the Delaware Supreme Court as it hears the DFC Global appeal.  On Friday, the Supreme Court granted their request and will consider their submission advocating that the chancery courts should defer to the merger price when reached as a result of a robust, pristine M&A auction.  This ruling was made despite the opposition voiced by the DFC Global stockholders defending the lower court’s decision to award them a premium to the merger price.  The Court found that the professors may be able to provide it with some “unique supplemental assistance” in this case, which involved a question of “general public importance.”

In a new post by the Harvard Law School Forum on Corporate Governance and Financial Regulation, Professor Albert Choi (Virginia Law School) and Professor Eric Talley (Columbia Law School) present their new working paper, which asks how best to measure “fair value” in an appraisal proceeding.

Applying principles of game theory and auction design, the authors show that as a general matter, setting the appraised value at merger price (using a so-called MP rule) “depress both acquisition prices and target shareholders’ expected welfare relative to both an optimal appraisal rule and several other plausible alternatives.”  The authors argue that the MP rule is the functional equivalent of nullifying the appraisal right altogether.