In a spate of recent decisions, the Delaware Supreme Court has embraced a shift in its approach to stockholder appraisal rights, a development that has attracted considerable comment. The greatest impact of these decisions, however, may lie beyond appraisal and still be to come. The decisions present a new conception of how trading prices relate to the stockholder’s entitlement, one that would alter basic ideas surrounding mergers, stock ownership, and the nature of the corporation as a vehicle for co-ownership. Delaware corporate law appears to be on the verge of a paradigm shift.
At the heart of the shift is … Read more
Almost everyone has experienced buyer’s remorse. It’s the feeling of purchasing, say, a big-screen TV at full price, only to see it on sale later for 50 percent off. Imagine, though, agreeing to pay $6 million for a chain of yoga studios just before the government shuts down exercise classes to slow the spread of a highly infectious disease. Or, more generally, agreeing to buy a company just before the stock market drops 30 percent, throwing the economic future of entire industries into turmoil.
That’s the kind of buyer’s remorse on steroids hitting scores of acquirers that committed to M&A … Read more
A peculiar appeal is currently before the Delaware Supreme Court. The case involves the judicial appraisal of DFC Global, a company acquired by a private equity firm in 2014. Approximately 12 percent of DFC stockholders dissented, and the Court of Chancery found that the fair value of the company was $10.30 per share, slightly higher than the $9.50 transaction price that the board had negotiated. On appeal, DFC Global has asked the Delaware Supreme Court for a rule of law that the Court of Chancery must defer to the merger price in an arm’s length transaction where there was a … Read more
In recent years, the stockholder’s appraisal remedy in Delaware has transformed from a little-noted feature of stock ownership to a potent option for dissenting shareholders. It’s also become a topic of heated debate. In our prior work, we have documented the recent increase in appraisal activity, largely driven by a group of specialist funds that have been called appraisal arbitrageurs. We have shown that these appraisal specialists focus their resources on a small number of transactions and that those transactions exhibit proxies for legal merit: abnormally low merger premia and insider involvement.
Our new article updates this picture through … Read more
The following post comes to us from Minor Myers, Assistant Professor at Brooklyn Law School, and Charles Korsmo, Assistant Professor at Case Western Reserve University School of Law. It is based on their recent paper, “The Structure of Stockholder Litigation: When Do the Merits Matter?,” which is forthcoming in the Ohio State Law Journal and is available here.
We offer a novel perspective on an old question in corporate law: Do the merits matter in stockholder litigation? In short, we find that the merits appear to matter very little in an important type of stockholder litigation—fiduciary duty class … Read more
The following post comes to us from Charles Korsmo, Assistant Professor at Case Western Reserve University School of Law, and Minor Myers, Assistant Professor at Brooklyn Law School. It is based on their recent paper entitled “Appraisal Arbitrage and the Future of Public Company M&A” and is available here.
Stockholder appraisal has been thrust into the spotlight by two high-profile and very large appraisal actions in Delaware involving the Dell and Dole going-private transactions. As we show in our forthcoming article, “Appraisal Arbitrage and the Future of Public Company M&A,” these two cases are part of a larger trend … Read more
The following post comes to us from Charles Korsmo, Assistant Professor of Law, Case Western University School of Law and is based on his recent article, “Venture Capital and Preferred Stock,” 78 Brook. L. Rev. 1163 (2013). The full paper is available here.
Scholarly attention to the governance issues surrounding preferred stock has been sporadic at best, perhaps due to a general impression that preferred stock is a relic of an earlier era of corporate finance. In fact, however, preferred stock—which combines some of the features of debt with some of the features of equity—has become the investment vehicle … Read more