Document Type

Article

Publication Date

2022

Publication Title

Cardozo Law Review

Abstract

Appraisal rights (or dissenter's rights) entitle a shareholder to the judicially determined "fair value" of her shares upon the occurrence of a merger that she does not support. Once a quiet corner of corporate law, appraisal rights have recently given rise to significant litigation and a growing body of scholarship. Whereas existing scholarship commonly has focused on improvements to be implemented by the judiciary, I propose a legislative improvement. In appraising "fair value," courts have failed to give force to the legislative mandate to "exclude any element of value arising from the accomplishment or expectation of the merger," which has prompted scholarly criticism of the courts. In failing to give force to that statutory exclusion, courts routinely have appraised 'fair value" to be the merger price, which necessarily reflects elements of value arising from the merger. Courts have favored the merger price as representing 'fair value" because courts lack training and experience in financial valuation; because the merger price is commonly the market-based result of arm's length negotiations (so it is likely more reliable than the court's own freewheeling valuation); and because the usage of the preannouncement market-based stock price-which some scholars favor and which necessarily excludes value arising from the merger, consistent with the appraisal statute-would enable exploitation of minority shareholders, whom the courts typically protect. Given recent judicial developments that render breach-of-duty claims less effective in disciplining directors, appraisal litigation has assumed additional significance. The statutory exclusion, however, contributes to the courts' common conclusion that 'fair value" equals, or is less than, the merger price. Capping the appraised 'fair value" at the merger price undermines the disciplinary effect on directors provided by appraisal litigation. Moreover, recent empirical studies reveal that enhanced appraisal rights redound to the benefit of shareholders, whether they support the merger or exercise appraisal rights. Consequently, this Article advocates for legislative deletion of the statutory exclusion, which would provide courts with greater freedom to determine that 'fair value" exceeds the merger price. Such deletion would better reflect the courts' existing analyses, better reflect apparent legislative intent, and better protect shareholders

Volume

43

First Page

921

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