Amendments to DGCL Limit Appraisal Proceedings

In recent years, there has been a notable rise in the number of appraisal proceedings initiated in response to merger transactions. Appraisal proceedings provide stockholders dissenting from a merger the right to forego the merger consideration in certain circumstances and instead receive a judicial determination of the fair value of their shares.

Much debate has surrounded this increasing frequency with which stockholders are seeking appraisal. As compared to traditional fiduciary duty claims challenging merger transactions, appraisal proceedings tend to go to trial more often, thus significantly increasing the time and expense involved for the respondent corporation. In response to such debate, the Corporation Law Council of the Delaware State Bar Association conducted a two-year study of the issues involved and proposed amendments to Delaware’s appraisal statute imposing certain limits on stockholders’ rights relating to appraisal proceedings. The amendments to Section 262 of the Delaware General Corporation Law (the DGCL) provide a de minimis threshold on the right to bring an appraisal proceeding involving shares traded on a national securities exchange, subject to certain exceptions. The amendments also allow a respondent corporation to cut off the accrual of interest, at least in part, in an appraisal proceeding by paying an amount to stockholders at any time prior to final judgment. Such amendments, described in more detail below, were passed by the Delaware legislature and recently became effective for merger and other transaction agreements entered into on or after Aug. 1.

The Recent Rise of Appraisal Proceedings