[Guest Post by Professor Alexandros Seretakis]*

In 2019 the European Union adopted the Mobility Directive, which introduces significant amendments to the legal framework for cross-border mergers aimed at enhancing legal certainty and diminishing the transaction costs of such operations. Most notably, the Directive introduces an appraisal remedy as a protection mechanism for minority shareholders in cross-border mergers in the EU. The adoption of a harmonized shareholder remedy was considered to be necessary because of the dangers posed by the change of the applicable company law for shareholders of the merging company after the cross-border merger. In the absence of appraisal rights, shareholders of the acquired company could involuntarily become members of a company incorporated in a jurisdiction with weak minority shareholder protection leaving them exposed to expropriation by controlling shareholders.

Overall, the adoption of a harmonized appraisal regime in the EU is a welcome development. It signals that the EU legislator recognizes the importance of appraisal rights for the protection of minority shareholders. Indeed, academic research has univocally documented that investor protection is crucial for capital market development and economic growth Nevertheless, significant scope of improvement remains. The appraisal regime, currently applicable only to cross-border mergers in the EU, should also be extended to domestic mergers, which also pose dangers to minority shareholders, such as an inadequate merger consideration or expropriation by controlling shareholders. Moreover, the new appraisal regime does not achieve full harmonization in crucial areas, such as the calculation of fair value where Member States accord differing importance to different valuation methods.

Read the working paper here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4931617

**RKS does not practice outside the United States and presents this information for educational purposes only. For legal issues, consult a licensed professional in your relevant jurisdiction.