Has the Strengthening of Appraisal Rights Led to an Increase in Takeover Premiums?

Abstract

Two Delaware appraisal related developments occurred in the summer of 2007. These developments have made it easier for target shareholders to seek appraisal, thus strengthening Delaware appraisal rights. Recent studies have documented empirical patterns that associate stronger appraisal rights with higher overall takeover premiums for all appraisal eligible deals. Meanwhile, the finance literature has long discussed the competitive nature of the market for corporate control. If buyers have already been paying competitive prices, the deal prices are unlikely to experience an overall increase in response to stronger appraisal rights, which protect minority target shareholders when they are under-paid at sub-market rates in M&A transactions. In this paper, we revisit the empirical patterns documented by recent studies and find that, consistent with the finance literature, there is no evidence that the strengthening of appraisal rights has led to an overall increase in takeover premiums across all appraisal eligible deals.