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FINANCIAL TIMES

If you don’t get your way in M&A, try court

Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

It is said that corporate valuation is an art. But would it not be satisfying if occasionally it could be scientific, as if proclaimed by an oracle? In this world our oracle is the Delaware state court, which is empowered to declare a definitive valuation in so-called appraisal hearings. Think of appraisal hearings as a chance to have your school algebra exam re-marked. Disgruntled shareholders in an M&A deal that closes in spite of their objection can have a judge set a binding value for their shares. The dissenter is entitled to that decreed price along with 5 per cent annual interest (meaningful in the current environment) for time elapsed since closing. The exercise of appraisal rights is rare given the risk (the judge can set a lower value than the deal price), timing (often years), and expense (hiring advisers and expert witnesses), but is increasingly prominent. Aggrieved shareholders have broached it as a remedy in the recent Dell and Clearwire battles.