Finding the Right Balance in Appraisal Litigation: Deal Price, Deal Process, and Synergies
Lawrence A. Hamermesh and Michael L. Wachter, 73(4) 961-1010 (Fall 2018)
This article examines the evolution of Delaware appraisal litigation and concludes that recent precedents have created a satisfactory framework in which the remedy is most effective in the case of transactions where there is the greatest reason to question the efficacy of the market for corporate control, and vice versa. We suggest that, in effect, the developing framework invites the courts to accept the deal price as the proper measure of fair value, not because of any presumption that would operate in the absence of proof, but where the proponent of the transaction affirmatively demonstrates that the transaction would survive judicial review under the enhanced scrutiny standard applicable to fiduciary duty-based challenges to sales of corporate control. We also suggest, however, that the courts and expert witnesses should and are likely to refine the manner in which elements of value (synergies) should, as a matter of well-established law, be deducted from the deal price to arrive at an appropriate estimate of fair value.
What Injures a Corporation? Toward Better Understanding Corporate Personality
J.B. Heaton, 73(4) 1031-1050 (Fall 2018)
Understanding what injures a corporation can help us better understand corporate personality. Traditional corporate injury is injury to corporate assets or profits. This makes sense, because without defining impairment to corporate assets and profits as corporate injury, most of what we think of as “essential” about a corporation—locking assets into a protected partition—would be impossible: (1) protecting the going concern value of the corporation; (2) maintaining creditor priority; and (3) contracting through the corporate form. More recent expansions of what constitutes corporate injury, including injuries to a corporation’s right to political speech (Citizens United) and religious freedom (Hobby Lobby), seem at first to fit poorly with existing corporate theory. But corporations can “lock in” and “partition” more than assets; they can partition beliefs and virtues as well. Viewed this way, existing corporate theory (and the idea of corporate injury as harm to whatever is partitioned by the corporate form) may provide more help in understanding corporate constitutional rights than previously recognized.
The Paradox of Delaware’s “Tools at Hand” Doctrine: An Empirical Investigation
James D. Cox, Kenneth J. Martin, and Randall S. Thomas 75(3): 2123-2172 (Summer 2020)
Much has been written on the subject of abusive shareholder litigation. The last decade has witnessed at first an increase and then a dramatic spike in such suits, primarily suits filed in connection with mergers and acquisitions. Delaware courts are known for not just their deep experience in corporate lawsuits but as being doctrinal innovators. One such innovation occurred in Rales v. Blasband, 634 A.2d 927 (Del. 1993), establishing the “tools at hand” doctrine, whereby, before considering whether to grant a motion to dismiss, the court admonishes the shareholder to resort to inspection rights accorded by the Delaware General Corporation Law so as to gather facts necessary for the complaint to survive the pretrial motion.