The landscape of M&A litigation in Delaware has undergone a substantial transformation within the last decade. Almost every transaction involving the acquisition of a publicly traded company has attracted stockholder litigation. This note considers Delaware’s attempt to strike the right balance between deterring frivolous litigation and ensuring adequate stockholder protections. In particular, this note considers the social utility of Delaware’s appraisal remedy and the practice of “appraisal arbitrage.” This note puts forth reasons as to why a healthy market of appraisal arbitrage benefits all stockholders: a meaningful threat of appraisal litigation encourages better sales practices in the market for corporate control, generates larger deal premiums, and is a powerful tool of corporate governance that targets transactions where abuse of minority stockholders is most likely to occur. Appraisal arbitrage, however, now faces an existential crisis after the Delaware Supreme Court’s decision in Dell, Inc. v. Magnetar Global Event Driven Mast Fund Ltd. The Dell decision, and the subsequent inconsistent applications of that decision by the lower courts, has resulted in a level of uncertainty that has dealt a crushing blow to appraisal arbitrage practitioners and that will ultimately have a derivative impact on stockholders who had previously stood to benefit from the activity of such arbitrageurs. This note argues that legislative reform is needed to restore the strength of the appraisal remedy as a viable protection for minority stockholders.
Thomas J. Meriam,
Protecting the Social Utility of Appraisal Arbitrage: A Case for Amending Delaware Law to Strengthen the Appraisal Remedy after Dell,
85 Brook. L. Rev.
Available at: https://brooklynworks.brooklaw.edu/blr/vol85/iss3/10