The vast majority of publicly announced mergers are approved by shareholders, certainly more than 90% no matter how you reasonably slice the data. One way to view this data is that shareholder votes are perfunctory rubber stamps; but another is to view the merger process as self-selecting – a publicly announced merger is one that acquirer and target believe will receive shareholder approval. In the latter case, the threat of failure is the motivating factor that effects the offer price pre-announcement; it is not the vote itself. And we see this in practice as well. It is the incredibly rare instance where an acquirer makes in seriatim bids, watching each fail in turn trying to find the price that gets the acquirer the necessary votes: we just don’t see this, period.
And if the vote itself is not what generates value to shareholders, then what of the costs of the vote itself? Voting takes time – sometimes a long time. This fact particularly intersects with appraisal since when is an important question when determining value.
Professor Matteo Gatti takes on the question of reducing the cost of merger voting in his 2018 article “Reconsidering the Merger Process: Approval Patterns, Timeline, and Shareholders’ Role.” [pdf via Hastings Law Journal]. The Professor proposes three potential reforms: (1) on-demand voting (meaning a threshold number of shares, perhaps 10%, must request a vote for a full vote to be needed); (2) randomized approval (meaning only a certain percentage of proposed mergers would be subject to a vote, but without knowing if their merger would be selected, the management teams would still be under threat and thus exercise their obligations to maximize value; while the non-selected mergers would get a more efficient approval); and (3) shorter approval timelines (shorten the SEC review process; shorten the 20 days Delaware requires for investor consideration of a preliminary proxy; etc.).
How would these changes affect appraisal? While Professor Gatti seeks to preserve appraisal rights in any of the proposals, changes would obviously be required to maintain the appraisal remedy; and more importantly, to retain a robust appraisal remedy that continues to provide enhanced premia to shareholders in mergers. Notably, in any proposal eliminating instances where every shareholder is given a voting opportunity (such as proposal 2, randomized approval), it may be incumbent on the legislature or courts to formalize the view that while voting “yes” on a merger is a bar to appraisal rights, any other action, including silence in the case that voting rights are not actually provided, abstention, or voting no, preserves appraisal rights. No doubt these are interesting proposals to change the merger process, and the appraisal remedy could surely be adapted to any of them.
One other idea for making voting more efficient? Blockchain – something we’ve covered multiple times before.