Appraising the 'merger price' appraisal rule

BVWireIssue #174-3
March 15, 2017

In cases involving dissenting shareholders in a post-merger appraisal proceeding, courts sometimes benchmark fair value against the merger price itself. Applying principles of game theory and auction design, the authors of a paper demonstrate that doing this is “strategically equivalent to nullifying appraisal rights altogether.” The authors are Albert H. Choi (University of Virginia School of Law) and Eric L. Talley (Columbia University—School of Law). The merger price rule, generally, can “depress both acquisition prices and target shareholders’ expected welfare relative to both an optimal appraisal rule and several other plausible alternatives.”

Extra: “Appraisals Gone Wild” is an article from Stout Risius Ross that surveys all fair value appraisal rulings in Delaware since 2010. It identifies certain key metrics in those decisions, including the court’s valuation methodology, whether an auction or go-shop was included in the M&A transaction, and the mean and median premium over merger price resulting from those awards.

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