In recent years, appraisal actions have become a closely watched area of Delaware corporate law, as the state’s Chancery Court sees a surge in lawsuits by dissenting shareholders seeking a judicial valuation of their shares after a merger. The question of how best to measure “fair value” in a post-merger appraisal proceeding—a hot topic for Chancery Court watchers—is the subject of a timely new study by Columbia Law School Professor Eric Talley and Visiting Professor Albert Choi, “Appraising the ‘Merger Price’ Appraisal Rule.”
Employing an economic framework that combines auction design, agency costs, and shareholder voting, Talley and Choi, leading experts in the intersection of corporate law, governance, and finance, assess how the “merger price” (MP) rule fares against alternative approaches that are not benchmarked against the merger price. They find that a categorical MP rule—recently favored by some courts and advocates—tends to depress both acquisition prices and target shareholders’ expected welfare relative both to the “optimal” appraisal policy and to several other plausible alternatives (including the current standard of Discounted Cash Flow analysis).
Talley, the the Isidor and Seville Sulzbacher Professor of Law, serves on the boards of the American Law and Economics Association (ALEA), as well the Society for Empirical Legal Studies, and was the society's co-president in 2013–2014. He is a frequent commentator in the national media, and he speaks regularly to corporate boards and regulators on issues pertaining to fiduciary duties, governance, and finance.
The working paper, recently cited in article by Bloomberg Law on M&A deal price challenges, is available here.
# # #
Posted on January 18, 2017