Among the most-discussed issues in corporate law today is whether appraisal actions should be curtailed. Triggered by above-merger price awards after deals were shopped in the market, the argument is that the appraisal process is being used unfairly and sometimes ends in a home-run result for plaintiffs. In response to those concerns, Delaware recently amended its appraisal statute to address some of the perceived abuses. But, before the reformers claim success too soon, recent developments may actually increase appraisal actions. First, some background is helpful in understanding these changes.
Appraisal actions substantially increased over the last four years. In part, that increase may have been caused by the combination of the very low interest rates available to investors generally and the 5 percent over the prime interest rate that the Delaware appraisal statute provides to appraisal petitioners as part of the appraisal judgment. After all, if the stockholder only recovers an appraisal award equal to the merger price, an additional 5 percent interest on that recovery is not a bad investment.
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