Shareholder Appraisal Process In Delaware

When certain corporate transactions, such as a merger and consolidation, deprive the shareholders of their ownership interests in a corporation against their will, the shareholders can use the appraisal statutes to obtain the "fair value" of the shares that have been taken.1 As more than half of U.S. public companies are incorporated in Delaware, the Delaware General Corporation Law (the DGCL) is likely to govern most shareholders seeking appraisal.2 Section 262 of the DGCL provides appraisal rights to dissenting shareholders who own shares in a corporation that is the subject of a merger or consolidation effected pursuant to the DGCL. Such rights are typically available only in a merger in which the holders of the shares of the merged entity receive cash in return for their shares.3 This alert provides an overview of the appraisal process under Delaware law and explains a number of recent developments that have contributed to the increasing use of appraisal rights.

Appraisal Process

Although the rights and obligations of shareholders and companies will vary depending upon the circumstances of the particular merger, the appraisal process under Section 262 of the DGCL generally proceeds as follows4:

If a proposed merger or consolidation for which appraisal rights are provided under Section 262 is to be submitted for approval at a shareholder meeting, the subject company must give notice of the availability of appraisal rights to its shareholders at least 20 days prior to the meeting.5 The notice must include a copy of Section 262 for the shareholders to review.6 A dissenting shareholder who desires to exercise appraisal rights must (a) not vote in favor of the merger or consolidation7; and (b) continuously hold the shares of record from the date of making the demand through the effective date of the applicable merger or consolidation.8 Further, the dissenting shareholder must deliver a written demand for appraisal to the company before the vote is taken.9 Within ten days of the effective date of the merger or consolidation, the surviving company must notify all shareholders who properly delivered an appraisal demand that the merger or consolidation has become effective.10 Within 120 days after the effective date of the merger or consolidation, the surviving company or any dissenting shareholder who has properly demanded appraisal and otherwise complied with the requirements of Sections 262(a) and (d), may commence an appraisal proceeding by...