Scott Callahan, Darius Palia & Eric L. Talley, Appraisal Arbitrage and Shareholder Value, 3 J. Law, Fin. & Accounting, 147 (2018)

  • Scott Callahan, Darius Palia & Eric L. Talley, Appraisal Arbitrage and Shareholder Value, 3 J. Law, Fin. & Accounting, 147 (2018)

This paper considers the question of whether the 2007 reforms had the negative repercussions that critics lament, both from theoretical and empirical perspectives. Theoretically, we extend the auction-design framework developed in Choi and Talley (2017) to derive a series of comparative statics related to observable factors concerning M&A transactions and target shareholder welfare. Using this model, we demonstrate that a credible threat of an appraisal action can sometimes constitute a valuable vehicle for augmenting shareholder value, whereby the specter of later appraisal value acts as a credible type of “reserve price” in a company auction. … More significantly, our model delivers testable empirical predictions relating to how “shocks” to the appraisal remedy affect expected shareholder value. In particular, we show that under plausible assumptions as to the status quo ante, a liberalizing shock to appraisal will lead to enhanced target shareholder welfare if it is accompanied by an increase in expected merger premia for appraisal eligible deals.

We then test this (and related) predictions empirically using the 2007 reforms as an appraisal-liberalizing shock. First, we demonstrate (consistent with our model) that deal premia are discernibly higher in appraisal eligible transactions (even when one accounts for the tax status of the deal). Second, we use a difference-in-differences specification to consider the combined effects of the 2007 shocks (Transkaryotic and the amendment of DGCL 262(h)) on deal premia for appraisal-eligible acquisition (using appraisal-ineligible deals as 4Formally, this condition also requires the assumption that under the status quo ante, a control). We find consistent evidence that the liberalizing 2007 shocks were followed by significant increases in premia associated with appraisal eligible deals relative to the control group.


In the last couple of years, at the Chancery Court, chancellors have started moving away from the view that the court will determine fair value without regard to the merger price. Now, in certain circumstances (where the deal price is a product of a competitive or robust sales price) chancellors may consider merger price as one of the relevant factors for purposes of determining fair value.

Now this question has found its way to the Delaware Supreme Court and the parties are lining up on both sides. There are even amici! Two sets of amici have rolled up: on the one side there are law professors arguing that the court should be able to presumptively rely on merger price to determine fair value in an appraisal proceeding unless that price does not result from arm’s length bargaining (DFC Holdings – Bainbridge, et al). On the other are law professors arguing requiring a court to rely on merger price to determine fair value would run counter to the language of the statutory appraisal remedy and also not always reflect fair value (DFC Holdings – Talley, et al.

DFC Globalの件では、既に、amicus breifを紹介しておりますが、引用されているもののうち後者のamicus briefは、次のような書き出しです。こちらのbriefも錚々たる教授陣です。私は、独立当事者間の株式買取請求権の公正な価格が、取引価格に縛られないと思っているので、後者のbriefに親近感を覚えます。

Appellant urges the Court to adopt a rule of law in appraisal proceedings that presumptively requires the Court of Chancery to defer exclusively to the transaction price unless that price does not result from an arm’s-length process. Amici disagree: Doing so would be a trifecta of bad law, bad economics, and bad policy.

via Brian JM Quinn

Appraising the ‘Merger Price’ Appraisal Rule

This paper develops an analytic framework combining agency costs, auction design and shareholder voting to study how best to measure “fair value” for dissident shareholders in a post-merger appraisal proceeding. Our inquiry spotlights an approach recently embraced by some courts that benchmarks fair value against the merger price itself, at least in certain situations. As a general matter, the “Merger Price” (MP) rule tends to depress both acquisition prices and target shareholders’ expected welfare relative to both the optimal appraisal policy and several other plausible alternatives. In fact, we demonstrate that the MP rule is strategically equivalent to nullifying appraisal rights altogether. Although the MP rule may be warranted in certain circumstances, our analysis suggests that such conditions are unlikely to be widespread and, consequently, the rule should be employed with caution. Our framework also helps explain why a healthy majority of litigated appraisal cases using conventional fair-value measures result in valuation assessments exceeding the deal price—an equilibrium phenomenon that is an artifact of rational, strategic behavior (and not necessarily an institutional deficiency, as some assert). Finally, our analysis facilitates better understanding of the strategic and efficiency implications of recent reforms allowing “medium-form” mergers, as well as an assortment of (colorfully named) appraisal-related practices, such as blow provisions, drag-alongs, and “naked no-vote” fees.

via Harvard