Workshop:
Appraisal Rights
Reconsidering Appraisal Rights for Long Term
Value Realization
Last week’s ruling of
the Delaware Supreme Court in the Dell appraisal case[1]
requires our reconsideration of reliance upon rights to appraisal for
realization of intrinsic value when a company is sold.
The ruling is broadly
viewed as intended to end the confusion created by the development of
specialized “appraisal arbitrage” funds, which had been inspired by the
Dell proceeding. This new litigation investment strategy was loudly
criticized as parasitic by both corporate and investment professionals
concerned with negotiating buyouts, and it also discouraged the use of
appraisal for its intended purpose of providing mainstream investors with
a means of realizing long term intrinsic value in opportunistically priced
(but fairly negotiated) mergers.
The court’s solution is
to officially endorse its view of the “efficient market hypothesis”[2]
as a foundation for relying upon market pricing to define a company’s
“fair value.” While this theory might be questioned by many investors and
economists, its mandated adoption for future court appraisals can be
expected to stop the circus of cases that threatened Delaware’s
credibility as a reliable legal home for corporations.
Unfortunately, the
court’s official view that fair price is the same as fair
value also puts an end to reliance upon Delaware appraisal
proceedings as a means of assuring an investor’s realization of the long
term value of capital contributions to an enterprise. But this was not,
after all, something we had expected to be able to rely upon until
recently, when the Dell situation stimulated our development of processes
to support participation by regulated funds and individual investors. And,
as long-time Forum participants will recall, we have established other
marketplace solutions that remain viable to address these essential
shareholder interests.[3]
GL – December 21, 2017
Gary Lutin
Chairman, The Shareholder Forum
575 Madison Avenue, New York, New York 10022
Tel: 212-605-0335
Email:
gl@shareholderforum.com