Scott Callahan, Darius Palia & Eric L. Talley, Appraisal Arbitrage and Shareholder Value, 3 J. L. 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.
The Delaware Court of Chancery recently confirmed in Salladay v. Lev that conditioning a conflicted (but non-controller) transaction upon approval by a fully empowered, disinterested and independent special committee can restore the business judgment standard of review for the transaction (rather than the more burdensome entire fairness standard that would otherwise apply). However, the court (in an opinion by Vice Chancellor Glasscock) found that such special committee “cleansing” works only if the special committee protections are put in place prior to the commencement of discussions about what might constitute an acceptable price. In Salladay, the court held that the company chairman’s discussions with the acquirer regarding price created a price collar before the special committee was formed that set the tone for future negotiations, and therefore, the special committee’s approval of the transaction did not restore the business judgment standard of review.
The Securities and Exchange Commission proposed amendments to the financial disclosure requirements in Rules 3-05, 3-14, and Article 11 of Regulation S-X, as well as related rules and forms, for financial statements of businesses acquired or to be acquired and for business dispositions. The Commission also proposed new Rule 6-11 of Regulation S-X and amendments to Form N-14 for financial reporting of acquisitions involving investment companies.
When a registrant acquires a significant business, other than a real estate operation, Rule 3-05 of Regulation S-X generally requires a registrant to provide separate audited annual and unaudited interim pre-acquisition financial statements of that business. The number of years of financial information that must be provided depends on the relative significance of the acquisition to the registrant. Similarly, Rule 3-14 of Regulation S-X addresses the unique nature of real estate operations and requires a registrant that has acquired a significant real estate operation to file financial statements with respect to such acquired operation.
The Original Study, which examined deals announced in 2006-07, reported that a higher bid emerged during the go-shop period 12.5% of the time (6 instances out of 48 go-shop deals). Using a new database of M&A transactions over the past nine years, we find that the jump rate in the 2010-2018 timeframe was 5.6% (6 out of 108 go-shops), declining to 2.5% (1 out of 40) in the period 2015-2018. The last successful go-shop in our sample occurred approximately three years ago, in January 2016, when II-VI Inc. successfully jumped GaAs Labs’ offer for ANADIGICS, Inc. during a 25-day go-shop period.
As one of us concluded in the Original Study, “go-shop provisions can be a better mousetrap’ in deal structuring – a `win-win’ for both buyer and seller.” However, over the ensuing decade, a broader set of transactional planners distorted the go-shop technology in ways that achieve their clients’ objectives but no longer satisfy broader corporate law objectives of promoting allocational efficiency in the M&A marketplace. (footnote omitted)
私は，ニューヨーク大学でWachtell Liptonの弁護士（David A. Katz氏とMark Gordon氏）による企業買収の講義を受講し，そこで幾つかのメモランダムが配られてから，Lipton氏のメモランダムを興味深く拝見してきました。本ブログでも，Lipton氏のメモランダムについて，度々言及しています。しかし，Lipton氏の執筆に係るメモランダムをすべて拝見したということではありませんでした。例えば，1988年11月3日の “The Interco Case” と題するメモランダムは，このPDFを見つけるまで拝見することができませんでした。このメモランダムは，Jeffrey N. Gordon, Corporations, Markets, and Courts, 91 Colum. L. Rev. 1931, 1959 n.95 (1991)，Mark J. Roe, Delaware’s Competition, 117 Harv. L. Rev. 588, 626 (2003)などの論文で引用されています。今回，このメモランダムも含めて，Lipton氏の様々なメモランダムを読むことができるということで，紹介をいたします。デラウェア州会社法の歴史の実務の側面を垣間見ることができました。
This work next explores the effect of MFW on the gains of the target shareholders, as measured by the premium over market prices, the cumulative abnormal returns around the announcement of the transaction, and the change from the buyer’s first offer to the final offer. This part of the analysis considers two hypotheses. The first hypothesis predicts that the gains of the target should be higher after MFW because shareholder voting acts as a check against negligent or captured boards, and even if boards discharged appropriately their fiduciary duties, the target shareholders can still use the threat of a veto to push acquirers to raise their offer (Subramanian, 2005, 15; Edelman and Thomas, 2015, 468; Jiang, Li, and Mei, 2016). As a result, the fact that MFW effectively incentivized MOM conditions should lead to an upward pressure on deal prices. The second hypothesis suggests, in contrast, that the target gains should remain similar after MFW because freezoeuts were already subject to significant scrutiny before 2013, and judicial scrutiny appears to be an effective substitute for procedural protections (Subramanian, 2007; Restrepo, 2013; Restrepo and Subramanian, 2015). As discussed in Section 4, the results generally support this hypothesis.