Kramer Levin Naftalis & Frankel LLP posted on Lexology [$$$] about the availability of so-called drag-along rights in private equity deals, which would require minority shareholders to waive rights to appraisal or otherwise challenge controlling shareholder transactions. According to the post, these drag-along rights  have become standard fare in stockholder or similar agreements for controlling shareholders seeking to avoid post-completion challenges in connection with a merger. In Manti Holdings LLC v. Authentix Acquisition Co., Inc., the Delaware Chancery Court held that waiver of appraisal rights is permitted under Delaware law, “so long as the relevant contractual provisions are clear and unambiguous.” However, the court suggested that in other circumstances, there may be limits to the upfront waivers of appraisal and other shareholder rights that a controlling shareholder may impose on minority shareholders.

On February 20th, a panel of Delaware lawyers from some of the state’s most significant firms will provide a webinar discussing updates to Delaware mergers & acquisitions law. Focusing on how recent decisions will impact the drafting and negotiation of deal documents, the webinar will discuss appraisal action, fiduciary duty actions and other topics relevant to anyone interested in shareholder rights.

Webinar Link [$$$]

A chapter published in a new edited book on cross-border mergers reviews the implementation of the Cross-border Mergers Directive[1] (hereinafter, “CBMD”) in Cyprus law. The CBMD was implemented in Cyprus by Law 186(I)/2007.[2] This Law amended the Cyprus Companies Law (Chapter 113) and added a new section to it (Arts. 201I–201X).  The Cyprus legislature did not adopt autonomous provisions for the decision-making process, creditor protection and protection of minority shareholders in cross-border mergers. The relevant provisions on domestic mergers and on schemes of arrangement apply by analogy to cross-border mergers.

Art. 201 dedicated to the protection of minority shareholders in schemes of arrangement applies by analogy to cross-border mergers. The rights deriving from Art. 201 are extended through Art. 201K(3) to cross-border mergers.[3] A cross-border mergers provision (Art. 201K (3)) refers directly to a provision on schemes of arrangement (Art. 201). Moreover, Art. 201 of Cyprus Companies Law (Chapter 113) is based on Art. 209 of UK Companies Act of 1948.[4] Art. 201 provides the possibility of squeeze-out rights and sell-out rights/appraisal rights in schemes of arrangement and, as a matter of fact, in cross-border mergers. These are exit rights. Dissenting shareholders[5] of merging companies could exit voluntarily or involuntarily from the company on fair and equal terms with the rest of the shareholders, who agreed to the cross-border merger.

With regard to the squeeze-out right, the company resulting from the cross-border merger (either a new company or one of the merging companies) could demand the acquisition of the shares of dissenting minority shareholders. The acquisition of shares through a squeeze-out right does not require the consent of the dissenting minority shareholder; the dissenting minority shareholder is obliged to sell his shares to the resulting company. The shares are acquired at a fair price, which is equivalent to the price provided for the transfer of shares. The relevant process is described by Art. 201(1).

Art. 201(2) introduces a sell-out right for dissenting minority shareholders, who could ask the company to acquire their shares. This appraisal remedy assists minority shareholders to exit the company after the cross-border merger by selling their shares at a “fair price”, which is equivalent to the price provided for the transfer of shares. Art. 201(2) states:

Where, in pursuance of any such scheme or contract as aforesaid, shares in a company are transferred to another company or its nominee, and those shares together with any other shares in the first-mentioned company held by, or by a nominee for, the transferee company or its subsidiary at the date of the transfer comprise or include nine-tenths in value of the shares in the first-mentioned company or of any class of those shares, then-

(a) the transferee company shall within one month from the date of the transfer (unless on a previous transfer in pursuance of the scheme or contract it has already complied with this requirement) give notice of that fact in the prescribed manner to the holders of the remaining shares or of the remaining shares of that class, as the case may be, who have not assented to the scheme or contract; and

(b) any such holder may within three months from the giving of the notice to him require the transferee company to acquire the shares in question; and where a shareholder gives notice under paragraph (b) of this subsection with respect to any shares, the transferee company shall be entitled and bound to acquire those shares on the terms on which under the scheme or contract the shares of the approving shareholders were transferred to it, or on such other terms as may be agreed or as the Court on the application of either the transferee company or the shareholder thinks fit to order.

    The Cyprus Companies Law (Chapter 113) also provides an additional way of protecting minority shareholders. Art. 202 is a general company law mechanism aiming at the protection of minority shareholders. This provision might also be invoked in cross-border mergers. It is based on Art. 210 of UK Companies Act of 1948.[6] Art. 202 offers an alternative remedy to winding up in cases of oppression of minority shareholders.

There are also some other provisions aiming at the protection of minority shareholders. These provisions are found in Art 201C, which is a domestic mergers provision, but they apply also to cross-border mergers (the right to inspect certain documents, simplification and exceptions in the merger process, an exception to certain requirements of the merger process, as long as minority shareholders are granted an appraisal right and the case of disagreement about the value of the shares, where the Court could determine this value).

*Lowenstein Sandler thanks Thomas Papadopoulos, DPhil (Oxford), Assistant Professor of Business Law, Department of Law, University of Cyprus, Nicosia, Cyprus for his contributions to this blog.

[1] Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies. [2005] OJ L 310/1–9 (Cross-border Mergers Directive). This Directive was repealed and codified by EU Directive 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law. [2017] OJ L 169/46–127. This codification took place in the interests of clarity and rationality, because Directives 82/891/EEC and 89/666/EEC and Directives 2005/56/EC, 2009/101/EC, 2011/35/EU and 2012/30/EU have been substantially amended several times (Recital 1 of the Preamble). However, this blog post would refer exclusively to the Cross-border Mergers Directive (hereinafter, “CBMD”), which was the EU legal instrument implemented in Cyprus company law.

[2] Law 186(I)/2007 amending Cyprus Companies Law (Chapter 113), Paragraph. Ι(I), No. 4154, 31-12-2007, Official Gazette of the Republic of Cyprus.

[3] Art 201K (3) states that: “For the purpose of protecting minority members who have opposed the cross-border merger, section 201 of this Law shall apply mutatis mutandis.”

[4] Tsadiras A (2010) Cyprus. In: Van Gerven D (ed) Cross-Border Mergers in Europe, vol. I, CUP, Cambridge, p 133-146, 142.

[5] Art. 201(5) defines “dissenting shareholders”: “In this section the expression “dissenting shareholder” includes a shareholder who has not assented to the scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with the scheme or contract.

[6] Tsadiras A (2010) Cyprus. In: Van Gerven D (ed) Cross-Border Mergers in Europe, vol. I, CUP, Cambridge, p 133-146, 142.

Panera, the most recent Delaware appraisal case involving a public company, was decided by the Chancery court last week. A major takeaway from the case: prepayment does not allow for a refund. Commentary has been coming in, including these highlights:

Law360: Panera case “nods” to deal price. {$$$}
Law firm: Panera reaffirms existing guidance; tells Boards of Directors they need a strong record of attention to performance and market over time.
World of Securities Regulation: Lack of clawback provision meant no refund in Panera case.
Bloomberg: Court finds sales process reliable, weighing weaknesses.

*Lowenstein Sandler LLP serves as counsel for petitioners in Panera.


Last week, the Delaware Chancery Court decided the Panera case.* While awarding deal price, the Court also decided a question involving prepayment – and whether there can be refunds – for the first time. The Court decided that, based on the statutory text, refunds of prepayment are not allowed. In other words: when a company prepays a portion of, or all of, the merger consideration, those funds are not subject to clawback no matter what the Court were to rule on fair value.

For more, see this post on  We will update commentary on Panera in the future.

*Lowenstein Sandler LLP serves as counsel for petitioners in Panera.

In a recent appraisal decision, Delaware Vice Chancellor Slights III awarded investors a 12% premium above deal price, fully adopting the discounted cash flow analysis Petitioners tendered, except for one minor adjustment. The case involved a three-way business combination of a privately held target turned public without minority shareholder approval. The court eschewed the use of market evidence because SourceHOV did not trade in an efficient market, and there was no “real effort to run a ‘sale process.’” Instead, the Vice Chancellor wrote, “I have more confidence in Petitioners’ presentation than I have in my own ability to translate any doubts I may have about it into a more accurate DCF valuation.” The decision can be found here.

Turkish Commercial Code No. 6102 grants a number of specific rights to minority shareholders representing at least 10% of share capital in a non-public joint stock company, with the aim of protecting them against majority shareholders or company management. These rights, which might affect significant functions, can be briefly explained as follows:

  • Minority shareholders may request the board of directors invite a general assembly meeting or request inclusion of an additional agenda item for the meeting agenda that the minority shareholders wish to be discussed during an upcoming general assembly meeting. If the request is rejected or not responded by board of directors within seven business days, the minority shareholders may apply to the court with the same request. This may be similar to the concept of shareholder proposals in other jurisdictions.
  • During the general assembly meetings, minority shareholders may request that discussions concerning approval of financial tables and other related subjects – such as release of board members or dividend distributions –be adjourned for one month.
  • In the case of any justified reason (g. doubts about the neutrality of the statutory auditor appointed by the general assembly), minority shareholders may request from the court a change in statutory auditor. To make this request, the minority shareholders must have voted against appointment of the auditor in the general assembly meeting, had their opposing votes recorded in the meeting minutes and been shareholders of the company for at least three months prior to the date at which the appointment was made.
  • If the general assembly rejects a request by a minority shareholder re to appoint a special auditor for the clarification of questionable matters, the minority shareholder may apply to the court with the same request.
  • Minority shareholders may also apply to the court requesting dissolution of the company, but this requires a justified reason. In such a case, the court, at its own discretion, may rule in favor of dissolution of the company as requested by the minority shareholders, or may terminate the shareholdings of the minority shareholders and require payment of market value of the shares to themselves – or any other equitable solution. This may be similar to the concept of minority shareholder dissolution rights in other jurisdictions.
  • A minority shareholder may also demand the company has issue share certificates and deliver them to all shareholders.
  • The Board of directors, company auditors and founding shareholders cannot be released from the liabilities with respect to incorporation and company capital increases unless four years have passed since the incorporation or the particular capital increase. Following the lapse of such four-year period, a release may only be validated upon the approval of the general assembly. However, a release cannot be granted if minority shareholders vote against such release. The minority shareholders thus also have the right to block such a release.

*Lowenstein Sandler LLP thanks the attorneys at ELIG Gürkaynak Attorneys-at-Law for their contribution. Lowenstein Sandler LLP does not practice law in the Republic of Turkey.

In a lengthy decision, Delaware Vice Chancellor Laster ruled that shareholders had the right to inspect the formal board materials of AmerisourceBergen Corporation and conduct a 30(b)(6) deposition to determine whether they needed additional documents, including informal board materials and officer-level documents.

In Lebanon Cty. Emp. Ret. Fund v. AmerisourceBergen Corp., stockholders sought to inspect AmerisourceBergen’s books and records relating to the company’s compliance with opioid distribution controls, citing corporate wrongdoing as its proper purpose for seeking the documents pursuant to Section 220 of the Delaware General Corporation Law. The court held that the stockholders had shown a credible basis to infer possible wrongdoing by AmerisourceBergen based on “the flood of government investigations and lawsuits” and “corporate trauma” (as evidenced by the company’s recent $10 billion offer to settle with state attorneys).

AmerisourceBergen argued that the stockholder plaintiffs must state up front in the Section 220 demand what they planned to do with the books and records, including any plans other than filing litigation. The vice chancellor rejected AmerisourceBergen’s argument on grounds that it is contrary to Delaware law and would require stockholders “to commit in advance to what [they] will do with an investigation before seeing the results of the investigation.” The vice chancellor similarly rejected AmerisourceBergen’s argument that the plaintiffs were not entitled to inspect books and records because the company had an exculpatory provision in its certificate of incorporation.

As this case confirms, investors can use books and records for non-litigation purposes and do not need to commit to plans for the books and records before receiving the documents. For these reasons, inspection rights can be an important tool among and alongside other rights available to investors, including appraisal rights, shareholder proposals and remedies for corporate misconduct.

Proxy firm Institutional Shareholder Services’ Sustainability Proxy Voting Guidelines – 2020 Policy Recommendations are public, and include a recommendation that shareholders vote in favor of appraisal rights when they are on the ballot.

ISS observes that some investment funds are taking a view towards incorporating various issues into their voting behavior – including corporate governance, environmental, or social issues.  These particular proxy guidelines are intended for those investors considering (or already pushing) these issues.

The right to make shareholder proposals and effect corporate governance is a critical shareholder right and one which goes hand in hand with other protections, including derivative action, appraisal, or inspecting books and records.

According to this Financial Times report [$$$], shareholder activist campaigns targeted at M&A activity were at record levels in 2019, comprising almost half of all activist activity in 2019.

M&A activism can take many forms, but perhaps of most interest to those also interested in appraisal is activism that focuses on already announced deals.  A shareholder dissatisfied with the deal price has a number of rights they can pursue – and one of those rights, which can and should inform the activist negotiation – is appraisal.

As a hypothetical example, a shareholder dissatisfied with an announced merger can attempt to replace the board (a proxy fight), publicly campaign against the merger and seek to drum up sufficient votes to defeat the merger via a vote (focusing on the important shareholder right of voting), launch certain kinds of litigation either on its own behalf or on behalf of the company (litigation rights), seek additional information (disclosure or inspection rights), among other tactics.

But the shareholder can also indicate it will vote against the deal and seek appraisal.  This can have multiple benefits beyond mere opposition.  For one thing, such a threat from a shareholder with a large enough position may alter the cost-benefit analysis of the deal itself.  If an acquirer is going to face a significant dissent and appraisal demand, and thus potentially face the possibility that it will be judicially required to pay more than the merger price for a significant segment of the Company, that can create an incentive to either increase deal price, deal directly with the potential dissenter, or even withdraw the deal.

This is not purely hypothetical: we’ve covered before that deals sometimes contain “appraisal conditions” – including, for example, the 2018 Hyundai merger.  Appraisal conditions, or “blow” provisions (i.e., they “blow up” the deal), are one area where appraisal and merger activism clearly meet.  But perhaps more subtle, the possibility of an appraisal case shows management that they will need to defend their deal process before a court post-merger.  That is to say: the merger itself does not cleanse a poor process of its problems – unlike, for example, some shareholder litigation focused on stopping a deal, which becomes generally moot with deal conclusion.

This implicit threat – that the process will be scrutinized, no matter what (note also that appraisal cases cannot be “dismissed” before discovery, unlike traditional shareholder cases) is a perhaps underutilized portion of the merger activist’s toolkit.