January 19, 2017

A Feature, Not A Bug: Appraisal Conditions Deter Appraisal Claims

This blog from Lowenstein’s Steve Hecht suggests that a buyer’s insistence on an appraisal condition – or a “blow provision” – might chill the exercise of appraisal rights. Here’s an excerpt discussing the potential impact of a 20% appraisal rights condition in a recent deal:

The very existence of a blow provision may cause some stockholders to hesitate in seeking appraisal, fearing that their dissenting vote might push the appraisal class over the 20% hurdle. Some casual observers find that only about 10% or less of the outstanding share population ultimately seeks appraisal.

Accordingly, a lower blow provision, on the order of 10% or 15%, could pose a very real challenge to appraisal and would test the resolve of stockholders who are unsatisfied with the deal price but concerned about blowing up the deal altogether. That may be true, for instance, where dissenters feel that the target is being sold at the right time but at the wrong price.

Buyers negotiate appraisal rights conditions to protect themselves against uncertainties associated with the appraisal rights process.  If those provisions deter appraisal rights claims from being made in the first place – well, I guess they work.  That’s a feature, not a bug.

John Jenkins