Portfolio 38-5th: Appraisal Rights in Mergers and Consolidations I. Introduction II. The Development of the Appraisal Remedy III. The Scope of the Delaware Appraisal Statute . Introductory Material A. The Nature of the Delaware Appraisal Remedy B. Transactions Giving Rise to Appraisal Rights 1. The holding company merger exception 2. The exception for surviving corporation stockholders whose approval was not required 3. The market-out exception 4. The rule in short-form mergers 5. The power to grant appraisal rights beyond the statutory framework 6. The de facto merger doctrine C. Who Is Entitled to Appraisal Rights 1. The stockholder requirement 2. The requirement not to consent 3. The continuous ownership requirement 4. The ability to seek appraisal for after-acquired shares D. The Scope of Appraisal in Other Jurisdictions IV. Perfecting Appraisal Rights Under the Delaware Appraisal Statute . Introductory Material A. Time Periods Under the Delaware Appraisal Statute B. Notice from the Corporation C. The Duty to Disclose Information Material to the Appraisal Decision D. The Written Demand for Appraisal 1. The form of the demand 2. Timeliness of the demand 3. The requirement that the stockholder of record make the demand E. The Post-Merger Notice from the Corporation F. The Statement of Shares G. The Petition for Appraisal 1. The standing of a beneficial holder to file a petition 2. The appraisal petition as akin to a class action 3. The contents of the appraisal petition H. Procedural Aspects After the Filing of the Petition for Appraisal 1. The verified list 2. The entitlement hearing 3. The withdrawal or termination of appraisal rights I. The Effect of Perfecting Appraisal Rights on Stockholder Status J. Contractual Waivers of Appraisal Rights K. The Procedures for Appraisal in Other Jurisdictions V. Valuation in a Delaware Appraisal Proceeding .Introductory Material A. The Statutory Mandate B. The Standard for Valuation: Proportionate Interest in a Going Concern C. Valuation Methodologies D. Arm's-Length Transaction Value Less Synergies E. Discounted Cash Flow Analysis 1. The estimate of future cash flows 2. The terminal value a. The perpetual growth method for calculating terminal value b. The capitalized earnings method for calculating terminal value c. Other methods for calculating terminal value 3. The discount rate a. The cost of equity (1). CAPM (2). The build-up method b. The cost of debt c. The weighted average d. Tax effects, S corporation status and tax assets e. Nonoperating assets and the resulting price per share 4. Factors that undercut the usefulness of a discounted cash flow analysis F. The Comparable Company Approach 1. The selection of comparable companies 2. The derivation of multiples using applicable financial measures 3. Valuation using the applicable multiples 4. The implicit minority discount G. The Segmented Valuation Approach H. The Comparable Transaction Approach I. ‘Ability to Pay' J. Earnings Value K. Market Value L. Asset Value M. The Delaware Block Method N. Fixing Value by Contract O. Determining Fair Value in the Vicinity of Bankruptcy P. Discounts and Premia 1. Minority discount 2. Lack-of-marketability discount 3. Private company discount 4. Key employee discount 5. Control premia Q. Testing a Valuation Conclusion
R. Award of Interest 1. The default rule of awarding interest 2. The default rule of compound interest 3. The same rate for pre-judgment and post-judgment interest 4. Interim awards of interest 5. Alternative methods of calculating an interest award S. Valuation Techniques in Other Jurisdictions VI. Litigation Aspects of the Delaware Appraisal Proceeding . Introductory Material A. Litigation Issues in a Delaware Appraisal Proceeding B. Counterclaims in a Delaware Appraisal Proceeding C. The Election of Remedies D. Attempts to Stay the Delaware Appraisal Proceeding E. Amendments to an Appraisal Petition F. Consolidation of Multiple Appraisal Proceedings G. Intervention in a Delaware Appraisal Proceeding H. Discovery in a Delaware Appraisal Proceeding I. Evidence Used to Establish ‘Fair Value' J. The Court's Gatekeeper Role for Expert Testimony K. The Burden of Proof L. The Use of Court-Appointed Experts in Appraisal Proceedings M. Alternative Dispute Resolution in Appraisal Proceedings: Mediation, Arbitration and Masters in Chancery N. The Benefits of Agreement O. The Mechanics of Trial P. Taxation of Court Costs, Expert Witness Fees and Attorneys' Fees Q. The Pace of the Litigation R. Settlement of Appraisal Proceedings S. Appeal from an Appraisal Determination T. Litigation Aspects in Other Jurisdictions VII. Principles of Statutory Interpretation in the Appraisal Context VIII. Alternatives to the Appraisal Remedy and the Exclusivity of Appraisal . Introductory Material A. Appraisal as a Stockholder's Exclusive Remedy 1. The exclusivity of appraisal after a short-form merger 2. The exclusivity of appraisal after a long-form merger 3. The ability to bring disclosure claims B. The Quasi-Appraisal Remedy 1. Quasi-appraisal as a replacement for appraisal rights 2. Quasi-appraisal as a measure of damages C. The Differences Between ‘Fair Value’ and ‘Fair Price' D. Other Jurisdictions on the Exclusivity of Appraisal
Jesse A. Finkelstein Richards Layton & Finger, P.A.Wilmington, Delaware
John D. Hendershot Richards, Layton & Finger, P.A. Wilmington, Delaware