Opinion ID: 1933235
Heading Depth: 1
Heading Rank: 3

Heading: Appraisal in Delaware

Text: An appraisal proceeding is a limited statutory remedy. [3] Its legislative purpose is to provide equitable relief for shareholders dissenting from a merger on grounds of inadequacy of the offering price. [4] Several eminent legal scholars have developed theories in an attempt to explain appraisal statutes. [5] The most recent is Professor Peter Letsou's preference reconciliation theory of appraisal, [6] which he explains as follows: ... when shareholders lack effective access to capital markets, risk-altering transactions (particularly those that alter the firm's market risk) can make some shareholders better off while leaving others worse off. Appraisal rights require the corporation to compensate shareholders who may be harmed by such transactions and place the net costs of providing that compensation on shareholders who otherwise gain. As a result, shareholders who otherwise gain from appraisal-triggering transactions will only vote in favor of those transactions if their gains more than offset the net costs of compensating objectors. Appraisal rights therefore decrease the probability of risk-altering transactions that result in net losses to shareholders, causing all shares to trade at higher prices ex ante. [7] The Delaware appraisal statute affords dissenting minority stockholders the right to a judicial determination of the fair value of their shareholdings. [8] The statutory mandate directs the Court of Chancery to determine the value of the shares that qualify for appraisal by: ... determining their fair value, exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. [9] In Tri-Continental Corp. v. Battye, [10] this Court explained the concept of value contemplated by the statutory mandate: ... that the stockholder is entitled to be paid for that which has been taken from him, viz., his proportionate interest in a going concern. By value of the stockholder's proportionate interest in the corporate enterprise is meant the true or intrinsic value of his stock which has been taken by the merger. The underlying assumption in an appraisal valuation is that the dissenting shareholders would be willing to maintain their investment position had the merger not occurred. [11] Consequently, this Court has held that the corporation must be valued as an operating entity. [12] Accordingly, the Court of Chancery's task in an appraisal proceeding is to value what has been taken from the shareholder, i.e., the proportionate interest in the going concern. [13]