Appraising the 'Merger Price' Appraisal Rule

34:4 Journal of Law, Economics & Organization 543 (2018)

36 Pages Posted: 22 Dec 2016 Last revised: 8 Jun 2021

See all articles by Albert H. Choi

Albert H. Choi

University of Michigan Law School

Eric L. Talley

Columbia University - School of Law; European Corporate Governance Institute (ECGI)

Date Written: May 17, 2018

Abstract

This paper develops an auction design framework to analyze various methods for assessing “fair value” in post-merger appraisal proceedings. Our inquiry spotlights an approach recently embraced by some courts benchmarking fair value against the merger price itself. We show that merger price deference effectively nullifies the role that appraisal can potentially play in establishing a de facto reserve price for company auctions, thereby depressing both acquisition prices and target shareholders’ expected welfare relative to both the optimal appraisal policy and a variety of other valuation measures. We also examine conditions under which deference to the merger price can be optimal. Our results have empirical implications for understanding appraisal, and they likewise help to inform doctrine by providing guidance to legal actors about when a sales process can be considered sufficiently “robust” to justify merger price deference.

Keywords: Mergers and Acquisitions, Appraisal, Fair Value, Merger Price Appraisal

JEL Classification: D44, D82, G34, K22

Suggested Citation

Choi, Albert H. and Talley, Eric L., Appraising the 'Merger Price' Appraisal Rule (May 17, 2018). 34:4 Journal of Law, Economics & Organization 543 (2018), Available at SSRN: https://ssrn.com/abstract=2888420 or http://dx.doi.org/10.2139/ssrn.2888420

Albert H. Choi (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

HOME PAGE: http://www.law.umich.edu/FacultyBio/Pages/FacultyBio.aspx?FacID=alchoi

Eric L. Talley

Columbia University - School of Law ( email )

435 West 116th Street
New York, NY 10025
United States

HOME PAGE: http://www.erictalley.com

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,132
Abstract Views
4,118
rank
23,469
PlumX Metrics