The Harvard Law School Forum on Corporate Governance and Financial Regulation recently posted an analysis by Wachtell, Lipton, Rosen & Katz of the Delaware Supreme Court’s recent decision in SWS, summarily affirming the Delaware Chancery Court’s award of fair value at 7.8% below the merger price. The authors observe that SWS is the first Delaware Supreme Court decision “in the era of ‘appraisal arbitrage’ to affirm an appraised valuation meaningfully below the deal price.” For more on SWS, see our coverage here .
The Harvard Business Law Review has published “The High Cost of Fewer Appraisal Claims in 2017: Premia Down, Agency Costs Up” an article we’ve blogged about previously, including commentary from interested authors. The HBLR piece, by Matthew Schoenfeld, argues that weakened shareholder litigation reduces the acquisition premium in mergers. This is another contribution to the growing body of work connecting appraisal – and other litigation remedies – to protection of shareholder rights and value.
A copy of the HBLR article is available here.
The Delaware Supreme Court issued its highly-anticipated ruling today in the Dell appraisal case, reversing and remanding the trial court’s 28% premium awarded to the stockholders. In sum, the court held that where a company is sold in a pristine M&A auction process, the chancery court must give the merger price “heavy weight” in its ruling, leaving it to the trial court to decide just how much weight that should be in this case. The Supreme Court also ruled on a cross-appeal challenging how the trial court assessed expenses across the appraisal class.
For further coverage of the Dell decision, see the links below.
**This firm is a counsel of record in the Dell case.
The Delaware Supreme Court made its ruling this week in the ISN Software appraisal case. A three-judge panel (not the full bench) affirmed the Chancery Court’s decision awarding a premium that was more than 2.5 times the merger price, as reported in Law360 [$$]. The Supreme Court affirmed without rendering its own opinion, relying instead on the trial court’s reasoning. ISN Software was a privately held software company, with the appraisal case stemming from the controlling stockholder’s cash-out of some of the minority shares.
As reported in Law360 [$$], on October 11, 2017 the Delaware Supreme Court heard argument appealing the Chancery Court’s ruling in the ISN Software appraisal case. We have previously posted on the trial court’s decision here, in which Vice Chancellor Glasscock awarded a premium to the merger price. The Supreme Court did not rule and did not indicate when it would do so. You can see the complete oral argument here (under the October 11, 2017, listing; ISN Software v. Ad-Venture Capital). Unlike the Dell and DFC Global arguments, the Supreme Court did not convene en banc – that is, with a full five-justice proceeding – and instead conducted argument by a three-justice panel, which did not include the Chief Justice.
We will continue to monitor the docket and post when the ruling is issued.
Lexology’s Federal Securities Law Blog has this analysis of the recent article we posted about, the High Cost of Fewer Appraisal Claims. The author, from Porter Wright in Ohio, notes that the recent data on appraisal claims dispel certain arguments made by the anti-appraisal crowd. In particular, he writes, “Prior to the 2016 amendments, many proponents of limiting appraisal rights argued that shareholders who invoke their appraisal rights negatively affect non-dissenting shareholders; their thought being that buyers in transactions routinely withhold giving their highest, top-dollar bid due to the risk that some of the buyer’s money will have to be used later to defend against appraisal litigation . . . [but], if this theory was true, then deal premiums would have increased after the 2016 amendments.” The recent research suggests this may not be the case.
The analysis concludes with an appeal to states outside Delaware considering appraisal legislation or that have appraisal laws: “Regardless of sophisticated investors using the appraisal arbitrage strategy, perhaps having expansive appraisal rights actually benefits target shareholders in the long run? Due to the study’s findings, it might be best if other states take a wait-and-see approach to better understand the impact of Delaware’s amendments before they follow suit.”
As reported today in Law360 [$$], the Delaware Supreme Court heard argument yesterday on the chancery court’s ruling in the Dell appraisal case. The court did not render its decision and did not indicate when it would do so. We’ll continue to monitor the docket and post when the ruling comes down.
** Note: this law firm is one of the counsel of record in the Dell case.
The Harvard Law School Forum on Corporate Governance and Financial Regulation posted yesterday on Merger Negotiations in the Shadow Judicial Appraisal. In this post, Professors Brian Broughman, Audra Boone, and Antonio Macias address the explosion in merger litigation over the past decade and present their empirical study testing the competing explanations of the ex-ante effect of appraisal litigation on M&A activity. As reported in their study, their evidence implies that “appraisal remedies afford important protection for minority shareholders” during their sample period.
Today the Harvard Law School Forum on Corporate Governance and Financial Regulation posted this piece by Matthew Schoenfeld, The High Cost of Fewer Appraisal Claims in 2017: Premia Down, Agency Costs Up, which studies the recent reduction in appraisal claims and the decline in M&A deal premia.
Law360 [$$] recently covered appraisal rights, presenting an analysis by attorneys at Fried Frank [pdf] discussing the SWS appraisal decision. In their article, the Fried Frank lawyers note their view that it is a “misconception” that SWS heralds a new likelihood of below-merger-price appraisal decisions. Reviewing the SWS decision and the appraisal jurisprudence, the authors note that in only three cases (since 2010), of many more, have the Delaware courts found below merger price and that each such case involved “unusual facts” – and opine that while some commentators view SWS as making below-merger-price cases more likely, they do not share that view. Later last month, Fried Frank also posted a primer on “Appraisal Practice Points Post-SWS” [pdf] – following up on their prior article.