Finding the Right Balance in Appraisal Litigation: Deal Price, Deal Process, and Synergies

75 Pages Posted: 10 Jan 2018 Last revised: 4 Mar 2018

See all articles by Lawrence Hamermesh

Lawrence Hamermesh

Institute for Law & Economics, University of Pennsylvania Carey Law School

Michael L. Wachter

University of Pennsylvania Law School - Institute for Law and Economics

Date Written: February 26, 2018

Abstract

This article examines the evolution of Delaware appraisal litigation and concludes that recent precedents have created a satisfactory framework in which the remedy is most effective in the case of transactions where there is the greatest reason to question the efficacy of the market for corporate control, and vice versa. We suggest that, in effect, the developing framework invites the courts to accept the deal price as the proper measure of fair value, not because of any presumption that would operate in the absence of proof, but where the proponent of the transaction affirmatively demonstrates that the transaction would survive judicial review under the enhanced scrutiny standard applicable to fiduciary duty-based challenges to sales of corporate control. We also suggest, however, that the courts and expert witnesses should and are likely to refine the manner in which elements of value (synergies) should, as a matter of well established law, be deducted from the deal price to arrive at an appropriate estimate of fair value.

Keywords: appraisal, appraisal arbitrage, valuation, fair value, synergies, discounted cash flow analysis

JEL Classification: K22

Suggested Citation

Hamermesh, Lawrence and Wachter, Michael L., Finding the Right Balance in Appraisal Litigation: Deal Price, Deal Process, and Synergies (February 26, 2018). U of Penn, Inst for Law & Econ Research Paper No. 18-01, Widener University Delaware Law School Legal Studies Research Paper Series No. 18-02, Available at SSRN: https://ssrn.com/abstract=3086797 or http://dx.doi.org/10.2139/ssrn.3086797

Lawrence Hamermesh (Contact Author)

Institute for Law & Economics, University of Pennsylvania Carey Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

Michael L. Wachter

University of Pennsylvania Law School - Institute for Law and Economics ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-7852 (Phone)
215-573-2025 (Fax)

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