A recurring topic in appraisal litigation (and merger litigation more generally) is that potential buyers, and in particular those who are most engaged with the company get a “look under the hood” that general investors do not. But this simplistic analogy may actually understate the informational advantage of a buyer compared to the market at large. Shareholders often are left in the dark – until a merger is announced, often as a fait accompli – as to possible conflicts, as to side deals made between a buyer and the board, or as to other potential buyers the board has either not considered or cast aside.
One answer to the informational asymmetry, proposed in “A Governance Solution to Prevent the Destruction of Shareholder Value in M&A Transactions” by Stephen Weiss, is to appoint an independent monitor, who acts on behalf of the shareholders themselves, able to observe and report on corporate governance and Board actions. While one could consider the appointment of a monitor in a number of scenarios, we focus on its application to a merger. The article suggests that an independent monitor (defined by a lack of relationship with the Board, the buyer, and the company) could both protect shareholders against Board actions against their interest, but also protect Boards against merger-related litigation challenging parts of the merger. In the context of appraisal, an independent monitor could act to review the deal process and make (effectively live) comment on whether the deal process is Dell-compliant.
A monitor is one of many potential ideas being floated to alter the merger process (such as blockchain solutions, which we have covered before), seeking to make the process fairer and more efficient.