Delaware's legislature created appraisal rights to
ensure that minority shareholders received fair
compensation for shares that were involuntarily sold in
a merger. Modern securities practices blur the line
between a share's equity interest and its voting interest,
which enables appraisal arbitrage-individuals,
particularly hedge funds, petitioning for appraisal
rights over shares that another person has the voting
rights to. Instances of appraisalarbitragein Delaware
mergers are soaring and causing corporate buyers to be
uncertain about a merger's ultimate price. This Note
contends that Delaware's legislature can ameliorate
this problem by establishing a contemporaneous
ownership requirement and by initiating efforts to
centralize share exchanges. Legal scholars have
discussed the benefits and costs of a contemporaneous
ownership requirement and a centralized share
exchange, but those discussions fail to consider the
implicationsfor corporate buyers.
A practical solution to the issue of appraisal
arbitrage is developed by looking at the current state of
appraisal rights through the lens of a corporate buyer.
Currently, corporate buyers must weigh the benefits of
a merger against the merger's foreseeable risks, a task
that appraisal arbitrage makes more difficult. These
buyers might attempt to mitigate these risks with
protective terms or deal restructurings, both of which
may leave shareholders in a worse position.
Nevertheless, the solution posited in this Note can
rectify corporate buyers' interests through a system of
accountability and verification that may also be used to
Miehl, Matthew E.
"The Cost of Appraisal Rights: How to Restore Certainty in Delaware Mergers,"
Georgia Law Review: Vol. 52:
2, Article 7.
Available at: https://digitalcommons.law.uga.edu/glr/vol52/iss2/7