Delaware North? The Rise Of Appraisal Litigation In Canada
Law360, New York (October 14, 2015, 6:16 PM EDT) -- Under Delaware law and most Canadian corporate statutes, a shareholder who votes against a fundamental transaction — such as a going-private transaction or a sale of all or substantially all of the corporation's assets — is entitled to object to the consideration offered and in turn require that they be paid the "fair value" of their shares, as appraised by a court. Where an investor concludes that there is a significant gap between the price of an M&A transaction and the fair value of their shares, the threat of the exercise of such appraisal rights can be used as leverage for improvement in the terms of the deal. In certain instances, specialist funds have even begun to engage in a form of so-called appraisal arbitrage, whereby they will buy into a company on the brink of a sale just for the purpose of appraisal litigation.
Long one of the more esoteric remedies afforded shareholders, the exercise of such rights has been on a significant upswing in the U.S. in recent years. A record 33 public company appraisal cases were filed in Delaware in 2014, and that number is set to increase again this year, with 20 cases filed in the first quarter of 2015 alone. Indeed, a number of hedge funds have even been established that are devoted exclusively to appraisal actions as independent investment opportunities....
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