July 27, 2021
Is Appraisal Arbitrage Poised for a Comeback?
A few months ago, I blogged about the Chancery Court’s decision in In re Appraisal of Regal Entertainment Group, (Del. Ch.; 5/21). In that case, the Court held that the appraisal statute required a fair value award to take into account changes in the target’s value between the signing & closing of a merger. According to this Cooley blog, the decision has the potential to rejuvenate the appraisal arbitrage game, which has been in steep decline following a series of Delaware Supreme Court decisions. Here’s an excerpt:
Parties should be mindful of the potential impact of Regal in transactions with delayed closings (particularly those with more significant gaps between signing and closing), as it provides a roadmap for would-be appraisal arbitragers to potentially capitalize on increases in target’s value between signing and closing. Buyers should keep a detailed record of any internal discussions and deliberations regarding deal price, and carefully document the type and amount of expected synergies reflected in the deal price, as synergy reductions will help to counteract any upward adjustment for increases in value.
The blog says that it appears unlikely that Regal result in appraisal arbitrage returning to pre DFC Global, Dell & Aruba levels. That’s because petitioners will have to establish that the target’s value increased (and the amount of the increase) between signing and closing – and any such increase would have to outweigh any reduction for synergies in order for the fair value to rise above the deal price.
– John Jenkins