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E-MailWilliam W. Bratton is Nicholas F. Gallicchio Professor of Law Emeritus at the University of Pennsylvania Carey Law School. This post is based on his recent paper. This post is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Using the Deal Price for Determining “Fair Value” in Appraisal Proceedings (discussed on the Forum here) and Appraisal After Dell, both by Guhan Subramanian.
Section 262(h) of Delaware’s General Corporation Law (DCL) bids the Chancery Court in an appraisal proceeding to “determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger.” It provides no further instructions regarding the means to the end, other than an admonition to “take into account all relevant factors.” For additional guidance on the meaning of fair value, we must consult a caselaw that stretches back in time almost a century.
There have been two intervals of disruption in this history—disruptions incident to unexpected revisions of the methodology of fair value ascertainment by the Delaware Supreme Court. The first was the 1983 decision of Weinberger v. UOP, 457 A.2d 701 (Del. 1983), which withdrew a longstanding and constraining valuation mandate and much expanded appraisal’s menu of acceptable methodologies, inviting reference to state-of-the-art valuation technologies. The intent and result were to facilitate liberality in the treatment of appraisal petitioners. The second disruptive intervention occurred more recently, with the decision of three cases–DFC Global Corporation v. Muirfield Value Partners, L.P., 172 A.3d 346 (Del. 2017), Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 177 A.3d 1 (Del. 2017), and Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., 210 A.3d 128 (2019). This trio of cases brings back mandatory methodology, imposing the merger price as the basis for fair value ascertainment in appraisals arising from a high-profile subset of arm’s length mergers. The rulings substantially modify Weinberger without overruling it, lurching away from liberality of treatment. Controversy and confusion have resulted.
My article, Fair Value as Process: A Retrospective Reconsideration of Delaware Appraisal, available here, reconsiders the jurisprudence of fair value under Delaware’s appraisal remedy, placing recent cases in historical perspective and offering a novel account. Its central observation is that appraisal has developed into a process jurisprudence rather than jurisprudence devoted to the articulation of an entitlement. As such it defies expectations and excites the wrath of academic commentators looking for a more conventional, rights-based evolution.
There is a nominal entitlement: the cases at all times announce that shareholder dissenters may pursue going concern value (as opposed to third party sale value) as the measure of fair value. But the Delaware courts have never gone on to articulate workable instructions as to how the entitlement may be realized. They have instead developed a minimalist conceptual framework in which fair value is the sui generis result of case specific fact-finding. Doctrinal pronouncements on shareholder entitlements matter much less than does a menu of approved methodologies, a menu that has included measures of third-party sale value during all periods of appraisal’s history. The determinative factor is the court’s ascertainment of the most reliable approach in the case from among presentations drawing on the methodological menu made by the parties.
Shifting perspectives on reliability rather than changing notions about shareholder entitlement have driven the recent course of the remedy’s history. It is a jurisprudence about how to decide the instructions of which change over time in response to policy concerns. A range of considerations come to bear–methodological integrity, fairness to shareholders, and the courts’ institutional interest in enhancing Delaware’s role as the nation’s maker and adjudicator of corporate law. Flexibility also is important–law-to-fact applications tend not to bind as precedents, permitting the courts to restrike the balance among the policy concerns as events unfold. Finally, since the decision of Weinberger there has been a consistent trend as regards the methodological menu: it grows. As the menu becomes more capacious the set of possible outcomes expands, giving the courts more room for maneuver. Concomitantly, the conceptual profile of a dissenting shareholder’s entitlement becomes less and less distinct. This is not a problem. Once one takes Delaware’s appraisal jurisprudence on its own terms, one cannot say that it fails to accomplish what it sets out to do.
