Fair Value as Process: A Retrospective Reconsideration of Delaware Appraisal

Abstract

This Article reconsiders the jurisprudence of fair value under Delaware’s appraisal remedy, placing recent cases in historical perspective and offering a novel account. Its central observation is that appraisal has developed into a process jurisprudence rather than jurisprudence devoted to the articulation of an entitlement. As such it defies expectations and excites the wrath of academic commentators looking for a more conventional, rights-based evolution.

There is a nominal entitlement: the cases at all times announce that shareholder dissenters may pursue going concern value (as opposed to third party sale value) as the measure of fair value. But the Delaware courts have never gone on to articulate workable instructions as to how the entitlement may be realized. They have instead developed a minimalist conceptual framework in which fair value is the sui generis result of case specific fact-finding. Doctrinal pronouncements on shareholder entitlements matter much less than does a menu of approved methodologies, a menu that has included measures of third-party sale value during all periods of appraisal’s history. The determinative factor is the court’s ascertainment of the most reliable approach in the case from among presentations drawing on the methodological menu made by the parties. Shifting perspectives on reliability rather than changing notions about shareholder entitlement have driven the recent course of the remedy’s history. It is a jurisprudence about how to decide the instructions of which change over time in response to policy concerns. A range of considerations come to bear--methodological integrity, fairness to shareholders, and the courts’ institutional interest in enhancing Delaware’s role as the nation’s maker and adjudicator of corporate law. Flexibility also is important--law-to-fact applications tend not to bind as precedents, permitting the courts to restrike the balance among the policy concerns as events unfold. Finally, since the decision of Weinberger v. UOP in 1983, there has been a consistent trend as regards the methodological menu: it grows. As the menu becomes more capacious the set of possible outcomes expands, giving the courts more room for maneuver. Concomitantly, the conceptual profile of a dissenting shareholder’s entitlement becomes less and less distinct. This is not a problem. Once one takes Delaware’s appraisal jurisprudence on its own terms, one cannot say that it fails to accomplish what it sets out to do.

Keywords: mergers and acquisitions, corporate law, appraisal rights, fair value, going concern value, merger price

JEL Classification: G34, K20, K22, K41, N22