Business Judgment Rule

CLS BlueSkyBlog recently posted regarding the interaction of the Delaware business judgment rule and appraisal.  Focusing on the Delaware Supreme Court’s commentary in Dell, the author of the post highlights that unlike Dell – which was a management buyout – hostile takeovers may implicate the intersection of appraisal and the business judgment rule in unique ways.  The author proposes that with a hostile takeover management may well be committed to a higher value as a way of encouraging resistance to the bidder.

The post focuses attention on the important intersection of the business judgment rule and appraisal rights; shareholder and management incentives are not always aligned, and not every merger situation is identical.  Appraisal rights are so critical because shareholders (especially minority shareholders) retain a fundamental right to avoid having their fortunes be tied to managements’ incentives.