A categorical/presumptive rule is bad law. The mandatory language of Section 262 of the Delaware General Corporate Law (DGCL) directs the Court of Chancery to “take into account all relevant factors” in determining fair value. As explained below, the appraisal remedy is separate and distinct from the common law governing fiduciary duties and cleansing conflicts of interest. A merger-price presumption would also disregard the principles enunciated in Weinberger v. UOP, 457 A.2d 701 (Del. 1983), directing the Court of Chancery to value companies using methodologies recognized and applied by professionals in the field, including (but not limited to) discounted cash flow (DCF) analysis. Instead, a broadly hewn “Merger Price” rule would effectively nullify the appraisal remedy, undermining the statutory mandate of \S~262.
A categorical/presumptive rule is also bad economics: To be sure, the price resulting from an arm’s-length process may accurately reflect fair value. But not always. In numerous seemingly benign cases, a facially disinterested process can still render a price falling short of fair value. In such situations, fair compensation requires an appraisal rule that is independent of the merger price. In fact, even the credible threat of an appraisal untethered to the merger price increases the chance that a market process will more accurately reflect fair value, as both bidders and target boards internalize the cost of approving a transaction at the lowest end of the range of fair values. As explained below, this ex ante benefit persists even if appraisals are prone to judicial error.
Finally, a categorical/presumptive rule is bad legal policy. Simply put, context matters: The evidentiary value of the deal price is a highly fact-sensitive question, ill-suited to a bright-line test. Any attempt at judicial line-drawing—preordaining circumstances where the transaction price must (or must not) be taken as conclusive—is doomed to be both over- and under-inclusive. The jurisprudential straightjacket urged by Appellant undermines the judicial discretion of Delaware’s sophisticated judiciary—a key factor in Delaware’s corporate law dominance.
via Lowenstein Sandler, Lowenstein Sandler
via Professor Bainbridge
Michael P. Dooley教授は，University of Virginia Law Schoolの会社法教授であり，また，長らくModel Business Corporation ActのOfficial Reporterでした。
The power to hold to account is the power to interfere and, ultimately, the power to decide. If stockholders are given too easy access to courts, the effect is to transfer decisionmaking power from the board to the stockholders or, more realistically, to one or few stockholders whose interests may not coincide with those of the larger body of stockholders. By limiting judicial review of board decisions, the business judgment rule preserves the statutory scheme of centralizing authority in the board of directors. In doing so, it also preserves the value of centralized decisionmaking for the stockholders and protects them against unwarranted interference in that process by one of their number. Although it is customary to think of the business judgment rule as protecting directors from stockholders, it ultimately serves the more important function of protecting stockholders from themselves.
via Stephen M. Bainbridge, Henry Manne, Gordon Smith
New York Times Dealbookによるインサイダー取引の被害者に関する記事です。
Although the Justice Department did not oppose the request, it argued that the investors in Elan and Wyeth did not qualify as victims of SAC’s crimes, a term defined in the Crime Victims Rights Act as one who was “directly and proximately harmed” by the violation. A letter filed by the prosecutors stated that “an individual who happens to buy or sell securities at the same time as an insider trading defendant is not considered a ‘victim’ under the C.V.R.A. because that individual was denied the opportunity to make the same illegal profits obtained by the defendant.”
Fairness can be defined in various ways. Most of these definitions, however, collapse into the various efficiency-based rationales for prohibiting insider trading. We might define fairness as fidelity, for example, by which I mean the notion that an agent should not cheat her principal. But this argument only has traction if insider trading is in fact a form of cheating, which in turn depends on how we assign the property right to confidential corporate information. Alternatively, we might define fairness as equality of access to information, but this definition must be rejected in light of Chiarella’s rejection of the Texas Gulf Sulphur equal access standard. Finally, we might define fairness as a prohibition of injuring another. But such a definition justifies an insider trading prohibition only if insider trading injures investors, which seems unlikely for the reasons discussed in the next section. Accordingly, fairness concerns need not detain us further; instead, we can turn directly to the economic arguments against insider trading.
via N.Y. Times Dealbook, PB.com
Professor Bainbridge writes:
Using the latest edition of the Model Business Corporation Act’s introduction, I prepared this map, in which red states have adopted all or substantially all of the current edition of the MBCA. Two states plus the District of Columbia have acts based on the 1969 MBCA. (Note that many of the white states have adopted selected provisions of the MBCA, albeit often with modifications.)