August 8, 2017

Blockchain: Potential Impact on Appraisal Proceedings

This recent blog from Lowenstein Sandler’s Steve Hecht & Rich Bodnar notes that Delaware’s recent adoption of the “blockchain amendments” to its corporate statute could have a significant influence on future appraisal proceedings.  Here’s an excerpt:

Multiple decisions in the Dell case put the potential relevance of blockchain to appraisal in focus. In July 2015, Vice Chancellor Laster reluctantly dismissed a subset of Dell shares seeking appraisal because, prior to the effective date, those stockholders’ stock certificates had been retitled. As a brief recap, in that instance, DTCC (the holder of effectively all stock in the US) certificated shares into the name of its nominee, Cede & Co. The petitioners’ custodians told DTCC to retitle the dissenting shares to the name of their own nominees – this retitling broke the record of ownership and thus denied these petitioners the right to appraisal. Blockchain, which generally does involve “titling” in this sense, could avoid such a result.

The same is likely with regard to a second opinion, from May of 2016, involving the lead petitioner in Dell. There, the lead petitioner instructed Cede (via its custodian) to vote in favor of the merger – but this was an error and the lead petitioner intended to vote against the merger. While blockchain cannot protect against mistaken instructions, blockchain could reduce the number of steps between beneficial holder and the exercise of its vote.

The blog also points out that blockchain could also have an impact on appraisal arbitrage – by potentially undermining the “fungible bulk” premise on which an arb’s ability to assert appraisal rights without showing that specific shares didn’t vote in favor of the merger is based.

John Jenkins