What do companies need to include in appraisal notices? According to a recent analysis piece in Law360 [$$$], more than they currently disclose. Analyzing a July 2018 opinion by Chancellor Bouchard – Cirillo Family Trust v. Moezinia, No. 10116-CB – the authors of this piece discuss that “merely providing notice of a merger and the existence of appraisal rights is not sufficient” in an appraisal notice. The notice must provide information allowing stockholders to make an informed decision on whether to “accept the merger consideration or to seek appraisal.” The authors, citing Cirillo, suggest that at minimum notices should include “information regarding (1) the background and terms of the merger, (2) the value of the constituent corporations, (3) the board’s decision-making process, and (4) potential conflicts of interest.”
This list of factors appears consistent with the current case law. As appraisal jurisprudence has made clear, conflicts and board deliberations go to the “process” portion of what some commentators have viewed as a sliding scale of deference to merger price. But if a stockholder is forced to make a decision on appraisal without full and fair information on process, it may be impossible – or at least incredibly difficult – for the stockholder to decide whether fair value is being achieved.
The notice in Cirillo was found to be “clearly” legally deficient. “The notice did not include any of DAVA’s financial information, any description of DAVA’s business or its future prospects, or any information about how the merger price was determined or whether the price was fair to stockholders.” But even with such a deficient notice – what remedy is there for a deficient appraisal notice? That’s somewhat unclear. Cirillo was a breach of fiduciary case, and the Court dismissed the breach of fiduciary claim with leave to replead. But other cases we have seen suggest that a quasi-appraisal remedy (again, attached to a breach of fiduciary claim) may be part of the answer. An inadequate appraisal notice may excuse a stockholder’s untimely attempt to assert appraisal via the quasi-appraisal remedy, or provide ammunition for the argument that the quasi-appraisal remedy is most appropriate because only via discovery can the stockholder get the information they were entitled to in the original (deficient) appraisal notice.
As we continue to see more litigation involving the notice process, the authors’ suggestion that issuing good, legally compliant appraisal notices is of increasing importance seems consistent with Delaware jurisprudence.
For a free version of this article (published subsequently), see the Harvard Law Forum on Corporate Governance.