Appraisal Rights | Brian JM Quinn | November 15, 2013

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Appraisal Rights

Original Creator: Brian JM Quinn Current Version: Brian JM Quinn Show/Hide

In the earliest general corporation statutes, statutory mergers required the unanimous approval of stockholders.  Part of the reasoning for the unanimity requirement was that accomlishment of the statutory merger would necesarily deprive all stockholders of their interests in the corporation, even those stockholders who do not wish to separate from the corporation. Under the unanimity rule mergers were rare, in part because a minority of stockholders could always hold up a transaction. 

Over time, approval requirements were liberalized. Now, only a majority of the outstanding shares are required to vote in favor of a merger for it to be approved. The policy exchange for liberalized approval regimes included the additional of appraisal rights to the statute. In a statutory merger, some stockholders may vote no because they beleive that the consideration being offered in the transaction does not represent what they believe to be fair value for their stock.  When that is the case, such stockholders have the right to seek a judicial appraisal of their stock. 

In an appraisal proceeding, a judge is asked to rule on the fair value of stock at issue in a merger transaction. A judge is not asked to rule on fiduciary duty claims or the propriety of the merger transaction, only whether the consideration offered in the transaction represented “fair value” for the stock. If teh judge determines that the fair value is higher than the consideration offered, then the surviving corporation in the transaction will make payment for the difference between the fair value and the merger consideration to any and all stockholders who have perfected their appraisal rights and sought a judicial appraisal.

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  1. 2 Show/Hide More Weinberger v. UOP, Inc.
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn
    We encountered Weinberger earlier in the semester when we were introduced to the entire fairness standard. Entire fairness, as you'll remember, has two components: fair dealing and fair price.  In Weinberger, the court described aspects of both of those.  While describing fair price in the context of the entire fairness standard, the court observed that the process for determining fair price under the entire fairness standard is not dissimilar to the determination of fair value in the context of an appraisal proceeding. 
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