Michael Greene, Dealmakers Eye Safeguards Amid Rising Valuation Challenges (Apr. 18, 2017)

Appraisal-out clauses generally allow sellers to walk away from a deal if shareholders that own a certain percentage of the target’s stock threaten to seek an appraisal of the “fair value” of their investment.

… the merger agreement between CBOE and Bats would have barred the deal if shareholders holding more than 20 percent of Bats stock made an appraisal demand. On the other hand, the Neustar acquisition—which is pending—would be dropped if shareholders holding more than 8.5 percent of Neustar stock challenge the deal price.

The risk of appraisal litigation “hinges on the size of the deal and the capacity of the acquirer to pay the costs and potential increased price in a successful appraisal action,” said John Stigi III, a California-based partner at Sheppard Mullin Richter & Hampton LLP who co-leads his firm’s Corporate/Securities Litigation team. “In a smaller deal, the risk of a big hit is a lot lower,” Stigi told Bloomberg BNA.

It’s too early to say how popular appraisal-outs will become, or whether they will start incorporating uniform language, said M. Adel Aslani-Far, a New York-based partner at Latham & Watkins LLP who represents large multinational corporations in M&A transactions. He told Bloomberg BNA that many sellers still are reluctant to agree to appraisal-out conditions because they don’t want to subject their transactions to the uncertainty.

via Steven M. Hecht



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