March 4, 2019

Appraisal: Delaware Filings Decline Again

According to this Cornerstone Research report, Delaware appraisal actions declined in 2018 for the second year in a row. This excerpt from Kevin LaCroix’s recent “D&O Diary” blog summarizes the study’s findings¬†& gives some insight as to the likely reasons for the decline:

According to the report, the number of Delaware appraisal petitions rose steadily after 2009, peaking at 76 in 2016. As discussed in the Cornerstone Research report, the increase in the number of petitions followed the recent rise of appraisal arbitrage, in which investors purchased shares in the target company after the deal announcement and then contested the deal price in a subsequent transaction.

As detailed elsewhere, among the attractions to investors in pursuing this strategy for much of this period is the relatively advantageous statutory interest rate; in 2016, the Delaware legislature amended the law to allow defendants to pre-pay anticipated amounts due as a way to cut-off the accrual of statutory interest.

However, the number of appraisal petitions declined to 60 in 2017 (a decrease of 21 percent), and declined again in 2018 to only 26 (a further decrease of 57 percent. The number of merger transactions that attracted at least one appraisal petition peaked at 47 in 2016, but decreased to 34 in 2017 (a decline of 28 percent), and decreased further to 22 in 2018 (a further decrease of 35 percent). The decline follows two recent Delaware Supreme Court decisions emphasizing that greater weight should be given in appraisal actions to the deal price (as well as the changes concerning the accrual of pre-judgment interest).

This year may see further interesting developments regarding appraisal actions – the Delaware Supreme Court has scheduled oral arguments on the appeal of Vice Chancellor Laster’s decision in the Aruba Networks¬†case for the end of next month.

John Jenkins