Using the Deal Price for Determining ‘Fair Value’ in Appraisal Proceedings

Abstract

This Essay presents new data on appraisal litigation and appraisal outs. I find that appraisal claims have not meaningfully declined in 2016, and that perceived appraisal risk, as measured by the incidence of appraisal outs, has increased since the Dell appraisal in May 2016. After reviewing current Delaware appraisal doctrine, this Essay proposes a synthesizing principle: if the deal process involves an adequate market canvass, meaningful price discovery, and an arms-length negotiation, then there should be a strong presumption that the deal price represents fair value in an appraisal proceeding; but if the deal process does not have these features, deal price should receive no weight. This approach would represent a middle-ground between the competing approaches advanced by twenty-nine law, economics, and finance professors in the DFC Global appraisal, currently on appeal to the Delaware Supreme Court.

Keywords: mergers & acquisitions, appraisal, Delaware, corporate law

JEL Classification: G30, G34, K22