Appraisal Rights Limitations Coming to Delaware

Abstract

Private equity firms and other investors in Delaware-based companies have, with increasing frequency, employed a strategy in which they vote against mergers or consolidations and then exercise their statutory appraisal rights provided under the Delaware Code. This profit-maximizing strategy, colloquially known as “appraisal arbitrage,” can work in cases where an investor believes the “fair value” of its shares is worth more than the price offered by the transaction. Some investors may have to rethink these strategies as Delaware Governor Markell recently signed a bill amending the appraisal rights statute, effective August 1, 2016. The amendments limit the ability of certain investors to engage in appraisal arbitrage following a merger. Only investors holding more than 1% of a company’s shares or shares valued at over $1 million dollars will have appraisal rights.