activist investing developments
summer 2007
Is it Worth it? The Value of Delaware
Appraisal Rights to the Activist Investor
Joseph Glatt, Senior Associate, Business Transactions
The going-private frenzy, combined with the recent trend of
including post-signing market check “go shop” provisions in merger
agreements for unshopped deals, has led to increased shareholder
activism among investors who are dissatisfied with the consideration
being offered in mergers and other consolidations. Their “just say no”
campaigns, whether through public statements or active solicitations,
have met with mixed success, as shareholders will often take whatever
premium is offered if a higher offer does not surface.
in this issue
1 | Is it Worth it? The Value of Delaware
Appraisal Rights to the Activist Investor
3 | FIRPTA — A Tax Trap for the
Unwary Activist Fund Manager
5 | Internet Publication of Proxy Materials
Can Cut Costs in Proxy Contests
This information has been prepared by Schulte
Roth & Zabel LLP (“SRZ”) for general informational
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Increasingly, activist investors have turned to the appraisal remedy to
seek redress. Recent case law supports the notion that the employment
of appraisal rights by activist shareholders can be an effective mechanism for maximizing investment returns, as the Delaware courts have
(1) awarded significant premiums over the consideration offered in the
subject transactions, (2) begun to accept with increased regularity a
range of valuation methodologies and (3) recently clarified that the
acquisition of shares post-record date will not necessarily invalidate an
appraisal demand with respect to those shares.
A recent example of a successful appraisal campaign waged by a
hedge fund involves the going-private transaction by Innovative
Communications Corp. of its majority-owned subsidiary, Emerging
Communications Inc., where Greenlight Capital LLC was awarded a
fair value decision of approximately 270% over the per share merger
consideration of $10.25. Other examples include Gabelli Asset
Management Inc.’s 2004 appraisal action against Carter Wallace Inc.,
in which the investment firm realized a more than 40% premium in a
settlement with Carter-Wallace over its appraisal litigation1 and The
Prescott Group LLC’s (“Prescott”) appraisal action against The Coleman
Company Inc., where Prescott was awarded a 455% premium.2 Cases
currently pending include the appraisal actions brought by Carl Icahn
against Transkaryotic Therapies Inc. (“TKT”) and Westchester Capital
Management Inc.’s appraisal action against Instinet Group Inc.
Sometimes, the mere threat of invoking appraisal rights can lead
an acquirer to increase the offer consideration, as witnessed by (1)
Elkcorp’s recent decision to accept a $43.50 per share offer after
Ramius Capital Group LLC threatened to invoke its appraisal rights
when Elkcorp said it favored a lower bid,3 (2) Healthcor Management,
LP’s threat to perfect its appraisal rights in the ICOS Corp. acquisition,
leading the acquirer, Eli Lilly & Co., to increase the per share
consideration from $32 to $344 and (3) Lawndale Capital Management
LLC’s threat to invoke its appraisal rights against National Home Health
Care Corp., if the $11.50 per share price offered by Angelo Gordon & Co.,
was not increased.5 Subsequently, Angelo Gordon & Co. increased its
offer in the pending transaction to $12.50.
continued on page 2
Delaware Rights continued from page 1
However, while a successful appraisal campaign can
no doubt yield significant benefits to the dissenting
shareholder (which do not have to be shared with other
shareholders), the pursuit of such a strategy is not without
its share of risks and disincentives. Investors would be
well-advised to thoroughly understand and appreciate the
strict nature of the legal compliance necessary to comply
with Delaware’s appraisal rights statute, the dynamics of
the process to invoke appraisal rights and the attendant
considerations that a typical appraisal proceeding dictates.
Background
The appraisal right is, in many ways, a by-product of the
corporation of yesteryear, when significant corporate
decisions, such as mergers, required the unanimous
consent of a corporation’s shareholders.6 Such a
burdensome requirement had the obvious effect of
subjecting the will of the majority to that of the minority
and allowed any one shareholder to effectively hold the
corporation hostage.7 Ultimately, states acknowledged the
problems inherent in such a construct and, accordingly,
passed laws allowing for the less than unanimous approval
of significant corporate events.8 However, in order to
protect minority shareholders who did not approve of
corporate events, such as mergers, states began adopting
laws that enabled dissenting shareholders to monetize
their investment as a means of compensation for their loss
of common law rights to veto such transactions.9
The Appraisal Process
The appraisal rights contained in Section 262 of the
Delaware General Corporation Law (the “DGCL”) are
available, subject to certain limited exceptions, to the
record owners of shares of any corporation that is a
constituent to a merger or consolidation. Typically,
appraisal rights arise in the context of all cash and stock/
cash combination mergers.
Appraisal rights will be denied with respect to (1) shares
of the corporation surviving the merger if the merger
does not require the approval of the shareholders of such
corporation and (2) in what has been commonly referred
to as the “market-out exception,” shares of any class or
series that is listed on any national security exchange,
quoted on the NASDAQ national market system, or held of
record by more than 2,000 holders.10 However, appraisal
rights will be restored if the consideration to be received is
comprised of anything but:
•
•
•
•
shares of stock of the corporation surviving or
resulting from the merger or consolidation,
shares of stock of any other corporation that will
be listed on a national securities exchange, quoted
on the NASDAQ national market system, or held of
record by more than 2,000 holders,
cash in lieu of fractional shares, or
any combination of the foregoing.11
The subject corporation must deliver notice to its
shareholders advising them of the availability of appraisal
rights and the methods to perfect such rights, which
notice, in the event of a long-form merger, must be
delivered at least 20 days prior to the shareholder meeting
convened for the purpose of approving the business
combination.12 But perfecting appraisal rights is not always
a simple task, since its requirements consist of:
•
•
•
•
•
continuous record ownership through the effective
date of the merger,
not voting in favor of, or consenting to, the
transaction,
delivery to the corporation by the dissenting
shareholders of a written appraisal demand prior
to the shareholder meeting on the merger,13
filing of a petition with the Delaware Court of
Chancery within 120 days after the effective date
of the merger, and
service of a copy of such petition on the
corporation surviving the merger.14
Appraisal rights will be denied for failure to meet any
deadline or to strictly comply with the statute.15 Moreover,
it is the dissenting shareholder that bears the burden of
proof that he or she has complied with the requirements
imposed by Section 262 of the DGCL.16 Perhaps most
importantly, it should be noted that appraisal rights are
only available to shareholders of record and not beneficial
owners of shares and any demand that is inconsistent in
its description of the record owner will likely be denied.17
This point is particularly relevant to activist investors,
since beneficial owners, whose shares are held in the name
of brokers or fiduciaries, are not shareholders of record;
therefore, technically, they are not entitled to appraisal
rights.18
Activist fund investors who wish to pursue the appraisal
remedy should confirm through their brokers that, in
fact, the registered owner (typically the custodian or the
custodian’s master custodian, i.e., the Depository Trust
Company (“DTC”) or its nominees, Cede & Co. (“Cede”))
send the appraisal demand and file any subsequent
petitions, since the latter and not the former are the true
record owners for purposes of Section 262 of the DGCL.19
In addition, given the growing tendency of investors to
use such synthetic instruments as total return swaps, prepaid variable forwards, options, warrants and other similar
derivative securities, such positions must be unwound
and shares must be held in kind in order for an investor
to employ its appraisal rights. Similarly, stock lent out
on margin should be returned prior to the shareholder
meeting in order to (1) ensure that such shares will not be
voted for the merger by the borrower of such securities
and (2) satisfy the continuous holding requirement
imposed by Section 262(a) of the DGCL. Ideally, investors
should insist on removing such rights from their prime
brokerage agreements to protect against these and other
related risks.
The appraisal demand, among other things, provides the
subject corporation with the percentage of shareholders
seeking appraisal, which is especially crucial for mergers
conditioned on the percentage of dissenting shareholders
not exceeding a specified threshold. This data forms
the basis from which the constituent corporations can
evaluate not only deal certainty but real economic risk,
should the merger proceed,20 sometimes leading the
acquirer to increase the offer price in an effort to mitigate
the appraisal threat. In fact, some hedge funds employ
continued on page 6
2 | Schulte Roth & Zabel LLP
FIRPTA — A Tax Trap for the Unwary Activist Fund Manager
Dan A. Kusnetz, Partner, Tax
It is common knowledge that foreign investors who
invest in U.S. publicly traded equities are exempt from tax
on their capital gains. This is because the United States,
like most industrialized nations, does not generally extend
its taxing power to capital gains realized by foreign
investors, in order to encourage investment in domestic
markets. As with most bits of common knowledge,
however, this rule is not absolute and in certain cases
foreign investors can become subject to U.S. tax on their
capital gains; even capital gains realized on the sale of
publicly traded stock. When this occurs, it often comes as
a rude shock to the foreign investors and to the investment
managers of the funds in which the foreign persons invest.
Managers of activist funds that have foreign investors
should understand how and when an investment in U.S.
equities can turn taxable in order to avoid, plan for or
minimize the damage. This article provides an overview
of this area so that fund managers will not be caught
unaware.
The most common reason that U.S. stocks can become
taxable in the hands of foreign persons is the application
of a 1980 statute known by its acronym, FIRPTA, referring
to the Foreign Investment in Real Property Tax Act,
which was enacted by a xenophobic Congress in 1980
when foreign investment in U.S. real estate was reaching
record levels. In a protectionist move, Congress decided
to eliminate the perceived tax advantage that foreign
investors had over U.S. investors, specifically their ability
to outbid U.S. investors because the foreigners did not
have to include taxes in their pricing assumptions. FIRPTA
makes gains realized from investments in U.S. real property
taxable in foreign investors’ hands. In order to squelch
the ability of foreigners to package U.S. real property
into corporations and then merely buy and sell the stock
of the property-holding companies, FIRPTA has a lookthru rule that extends its scope to dealings in the stock
of companies where at least half of the fair market value
of the company’s trade or business assets is attributable
to U.S. real property assets. Companies that meet this fair
market value test are called, in FIRPTA nomenclature, U.S.
Real Property Holding Corporations (“USRPHCs”).
In an effort to not disrupt the operation of U.S. stock
exchanges, a carve-out from the application of FIRPTA
was provided for investments in publicly traded stocks
where the investor does not hold more than 5% of the
class of stock being traded. Ownership of more than 5% of
a class of publicly traded stock is the FIRPTA trap. Once
foreign investors cross this 5% ownership threshold, their
entire investment (not just the amount over 5%) becomes
fully taxable. What is worse, even if their position is
subsequently reduced below 5%, the FIRPTA taint — and
the corresponding taxability of the gain — remains in place
for gains realized during the next five years.
Before delving into the technical rules in the FIRPTA
statutes, it is worth pointing out how this FIRPTA trap
arises in common situations. If an activist fund manager
were to invest in a pure-play real estate company, it
should not be surprised to learn that FIRPTA would apply.
However, in many cases where the real estate is not the
primary value driver for the company, FIRPTA can apply as
well. A few examples may help to illustrate:
• Investment in a distressed restaurant chain. Due to
the distressed nature of the business, goodwill may
be nonexistent or at a historically low value and the
portfolio of owned and leased locations may be at
least half of the company’s asset value.
• Investment in auto parts manufacturer. In the current
environment for auto-related manufacturing, another
distressed-company play, because the test focuses
on the fair market value of the assets rather than
their book or tax basis values, the fair market value of
factories, warehouses, and other facilities may exceed
the value of the other assets of the company.
• Investment in a hotel, retail, prison or similar facility
operator. Despite the fact that these are operating
businesses and that investor valuations may be
determined on a multiple of earnings or cash flow,
when the FIRPTA test is applied it may be that the
fair market value of the real estate emerges as a
significant component of value. In addition, personal
property associated with operations can be treated
for FIRPTA purposes as real property in certain cases
(e.g., in the case of a hotel, beds, furniture, televisions,
telephone systems, laundry equipment and lobby
furnishings can all be treated as real estate assets for
purposes of applying the test).
• Investment in an owner/operator of cell towers: In
general, these companies merely lease space and own
transmission and related equipment. Nonetheless, the
FIRPTA regulations require that the value of personal
property associated with the use of real estate
must be included in the determination of real estate
values. This rule may mean that cell tower operating
companies will have almost all of their asset value as
real estate for FIRPTA-testing purposes.
continued on page 4
activist investing developments — summer 2007 | 3
FIRPTA continued from page 3
Even if the target company passes the FIRPTA test at
the time of investment, consideration should be given as
to how the company will fare under the test over time.
Spinoffs or other dispositions of unwanted or non-core
assets could cause a company to become a USRPHC in the
future, thereby creating taxability to foreign investors just
at the time when the activist business plan is beginning
to bear fruit. Once a corporation becomes a USRPHC, it
will retain that status for five years, even if the value of
its U.S. real property assets declines to less than 50%.
This rule creates a common problem for start-up or other
early-stage companies where, for example, a biotech lab
may constitute the majority of a company’s assets prior
to its development of products, patents, goodwill or other
intangible assets of value.
The technical rules and regulations implementing FIRPTA
are numerous: 12 pages of statutes and almost 150 pages
of regulations. The goal of this article will be to highlight
only the most critical rules generally applicable to activist
investors in order to permit such investors to recognize
the risk of FIRPTA’s application. For particular investments,
seeking the advice of a tax lawyer (at Schulte Roth &
Zabel, preferably) is highly advisable.
a 5% pro rata share of that investment, is there a FIRPTA
problem? The rules on tiered ownership are somewhat
ambiguous but the better answer appears to permit a
look-thru approach in the case of funds operating in
partnership, LLC or other pass-thru form. The following
diagram illustrates this approach:
Foreign Investors
Domestic
Feeder
Fund
Foreign
Feeder Fund
(Cayman Corporation)
70%
Constructive Ownership
To determine whether a foreign person owns more than 5%
of the stock in a corporation, constructive ownership rules
apply which can attribute ownership of target stock from
spouses and other family members, and from partnerships,
trusts, and corporations that own target stock to the
extent that the foreign investor also owns interests in such
entities. The mere fact that two investment funds may
share the same fund manager will not generally cause the
ownership positions of such funds to be aggregated.
Testing at Master or Feeder Level
One question that frequently arises in a fund context is
the level at which the 5% test applies. For example, in an
activist fund context, if the fund has more than 5% of the
stock of the target corporation, but no foreign investor has
4 | Schulte Roth & Zabel LLP
<5% = No FIRPTA problem
30%
3% indirect interest
in Public Company
Master
Fund
Public
10%
The 5% Exception for Publicly Traded Stock
A class of publicly traded stock only becomes stock of
a USRPHC (and, therefore, subject to FIRPTA) when a
foreign person owns more than 5% of that class of stock
at any time during the five years prior to the date of
disposition of the stock. Publicly traded stock is defined
as stock of a corporation that is regularly traded on an
established securities market. An established securities
market includes any over-the-counter market where
an interdealer quotation system regularly disseminates
quotations by multiple brokers or dealers. Activist players
in the distressed and bankruptcy markets should note
that if the stock of the target becomes de-listed, the
publicly traded stock exception could evaporate and
even a position of less than 5% could become subject to
FIRPTA. Similarly, a suspension of the trading in stock of a
company for failure to file its financials and annual reports
may, if the suspension is for a meaningful amount of time,
cause the stock to no longer be treated as “regularly”
traded and the exception could be lost.
Testing at Foreign
Investor Level:
90%
Public Company
It should be noted that in a case where the foreign feeder
fund is a corporation for U.S. income tax purposes, the
look-thru ends and the 5% test is applied at that level.
In such a case, if the foreign feeder is deemed to own
more than 5% of the target stock, the foreign investors
themselves would suffer the economic effect of the
imposition of U.S. tax collectively, even if no single foreign
investor owned more than 5% of the underlying U.S.
company stock.
Determining USPRHC Status
The statute creates a presumption that stock in any U.S.
corporation is stock in a USRPHC unless the taxpayer can
prove otherwise. This puts the burden of proof on the
shareholder. However, a shareholder’s ability to prove the
issue is significantly constrained by a lack of information.
Recognizing this, the applicable regulations shift the
determination burden to the corporation. Under the
regime set forth in the regulations, a foreign shareholder
that wants to rely on the 5% publicly traded stock
exception need only make a request of the corporation for
a determination of the corporation’s USRPHC status. If the
corporation fails to respond, the foreign shareholder can
request that the IRS make the determination instead. This
regime may work in the case of private equity investors,
but is anathema in the case of the activist manager.
Before launching its assault on the target corporation,
an activist manager with foreign investors should be
thinking about the FIRPTA problem. During the analysis
of the target, its business plan and the nature of the
continued on page 7
Internet Publication of Proxy Materials Can Cut Costs in Proxy Contests
David E. Rosewater, Partner, Business Transactions
Young J. Woo, Associate, Business Transactions
Increasingly over the years, proxy contests have
offered activist investors an effective means of advocating
or implementing change at public companies in which
they have ownership interests. However, the significant
cost involved has been a deterrent to mounting such
challenges. The total cost required for launching a proxy
contest can range from the low six figures into the seven
figures depending on the scale and scope of the contest,
including related litigation, and activist shareholders have
to expend their own funds, while incumbents have at their
disposal the corporate treasury.1
New Proxy Rules
New rules adopted by the Securities and Exchange
Commission (the “SEC”) have the potential of reducing
some of these costs. On Jan. 22, 2007, the SEC adopted
amendments to the proxy rules under the Securities
Exchange Act of 1934 (the “New Proxy Rules”)2 to
provide public companies and others soliciting proxies
with an alternative method of furnishing proxy materials
to shareholders in certain circumstances: posting the
materials on the Internet. Issuers and dissidents wishing
to take advantage of this new option must (i) send
shareholders a notice (the “Notice”) informing them that
proxy materials are available electronically on a publicly
accessible Internet web site and (ii) make paper copies
of the proxy materials available to shareholders upon
their request free of charge. The New Proxy Rules, which
take effect on July 1, 2007, spell out the processes of this
“notice and access” proxy model.
While this newly available process will not eliminate all
printing and mailing expenses or other costs, such as
preparation of solicitation materials, proxy solicitor fees
and legal fees, it does offer a more cost-effective option
for conducting proxy solicitations. Additionally, activist
shareholders’ existing ability to limit the scope and scale of
the solicitation (for example, to shareholders with significant
holdings) will be unaffected by the New Proxy Rules.
‘Notice and Access’
An activist shareholder wishing to follow this “notice and
access” model is required under the New Proxy Rules to
send out a Notice informing shareholders of the availability
of the proxy materials by the later of: (i) 40 calendar days
prior to the relevant shareholder meeting date; or (ii) 10
calendar days after the issuer first sends out its proxy
statement or Notice to shareholders. All proxy materials
to be furnished through the “notice and access” model,
other than additional soliciting materials, must be posted
on a specified Internet web site by the time the Notice
is sent to shareholders. These materials must remain on
such web site and be accessible to shareholders through
the conclusion of the relevant shareholder meeting, at no
charge to the shareholder. The Notice must identify clearly
and by recitation of the full direct link citation, the web
site address at which the proxy materials are available. The
web site must be a publicly accessible web site other than
the SEC’s EDGAR web site.
The Notice must also contain information including: (i) a
prominent legend advising of the availability of the proxy
materials on the Internet, (ii) a list of the materials being
made available at the specified web site, (iii) a toll-free
telephone number, e-mail address and web site where the
security holder can request a copy of the proxy statement
and form of proxy and (iv) instructions on how to access
the form of proxy, provided that such instructions do
not enable a security holder to execute a proxy without
having access to the proxy statement. Shareholders
must have a means of executing their proxies as of the
time the Notice is sent. The initial delivery of the Notice
may not be incorporated into, or combined with, another
document, including the form of proxy, except the notice
of a shareholder meeting as may be required by state law.3
Furthermore, the Notice may not contain any information
not specifically required under the New Proxy Rules or,
if combined with the notice of the shareholder meeting,
applicable state law.
The soliciting person may not send a form of proxy to
security holders until 10 calendar days or more after the
date it sent the Notice to security holders, unless the form
of proxy is accompanied or has been preceded by a copy
of the proxy statement through the same delivery medium.
If the soliciting person sends a form of proxy after the
expiration of such 10-day period and the form of proxy
is not accompanied or preceded by a copy, via the same
medium, of the proxy statement, then another copy of
the Notice must accompany the form of proxy. The Notice
must be filed with the SEC no later than the date that the
soliciting person first sends it to security holders.
The New Proxy Rules require the soliciting person
following the “notice and access” model to post any
additional soliciting materials on the same web site on
which the proxy materials are posted no later than the day
on which the additional soliciting materials are first sent
to shareholders or made public. As desired, the soliciting
continued on page 7
activist investing developments — summer 2007 | 5
Delaware Rights continued from page 2
arbitrage strategies premised solely on this dynamic or
as part of a broader strategy to exploit what they see as
value differential in a given transaction context. However,
it should be noted that the acquirer may always waive
the appraisal condition and close the merger over the
appraisal claims. Indeed, Shire Pharmaceuticals Group plc
(“Shire”) exercised precisely that option when a reported
34.6%21 of the outstanding TKT shareholders perfected
their appraisal demands in the face of a condition in
the merger agreement placing a cap on dissenters at
15%.22 Shire is now faced with having to deal with Icahn
and others in court, where the value of the merger
consideration will be tested.
The “continuous holding” requirement is intended to deny
appraisal rights to a party who was a shareholder of record
as of the demand date and as of the effective date of the
merger but not in between, by virtue of selling shares
during the window period.23 Accordingly, a shareholder will
be estopped from pursuing its appraisal remedy where it
can be demonstrated that such
shareholder sold or bought
shares between the demand
date and the consummation
of the merger.24 However, as
clarified by the Delaware Court
of Chancery’s ruling in the recent
entitlement challenge involving
Ichan’s appraisal demand against
TKT, assuming satisfaction with
all other relevant conditions, a
shareholder will not forfeit the
right to an appraisal remedy
merely by purchasing shares
after the record date set for
approving the merger.25 This
decision alone may impact
the level of appraisal demands
brought by activist holders,
particularly those who buy
shares after a transaction is
announced.
Cede, as nominee for DTC, was the record owner of all the
shares throughout the period. In fact, Cede was the record
owner of approximately 30 million TKT shares, of which
only 13 million were voted for the merger. Despite well
settled case law supporting the notion that an entity that is
a record holder but not the beneficial owner of shares “can
vote certain of those shares against a merger, and others in
favor, and seek appraisal as to the dissenting shares,”27 TKT
asserted in its entitlement challenge that the court must
look through the record owner and force the petitioners
to prove that the shares over which they sought appraisal
were not voted for the merger by the previous beneficial
owner. The court denied TKT’s contention and reaffirmed
the notion that appraisal rights are only available to
record owners who have “an absolute right to proceed
under Section 262 once the record holder complies
with its requirements.”28 Furthermore, in answering the
question, “Must a beneficial shareholder, who purchased
shares after the record date but before the merger vote,
prove, by documentation, that each newly acquired share
(i.e., after the record date) is a share not voted in favor
of the merger by the previous
beneficial shareholder?,” the
court responded with a clear
negative.29 In fact, the court
even conceded that its ruling
may encourage arbitrageurs
to seek appraisal rights by
“free-riding on Cede’s votes”
but left the responsibility
of addressing that potential
problem with the legislature.30
Particularly, the ruling has the
potential effect of enabling
activist investors to review the
definitive proxy disclosure which
details important aspects of the
transaction including process
and valuation but may not be
available until after the record
date has been set, and thereby
assess the transaction’s “appraisal profile” and make their
investment after the meeting’s record date has been
established. So long as the total number of dissenting
shares does not exceed the total number of shares that
have abstained or voted no on the merger, and assuming
the investor has otherwise perfected his appraisal demand,
such investor’s post-record date acquired dissenting
shares should, as per the TKT ruling, qualify for appraisal.
Shire has established a
reserve of $38.6M just
for the interest that
may be awarded by the
Delaware court in the
appraisal proceeding.
In addition to Icahn, hedge funds including Millenco
LLP, Porter Orlin LLC, Atticus Capital LP, Sigma Capital
Associates LLC, CR Intrinsic Investments LLC and Viking
Global Equities LP filed petitions asking the court to
establish the fair value of their holdings in TKT, which they
believed was far in excess of the $37 per share acquisition
price offered by Shire. Although the petitioners only
owned approximately 2.9 million shares as of the record
date, they began to accumulate a position which, together
with shares previously beneficially owned by them,
totaled approximately 11 million shares in the aggregate.
As a result, if the court rules in the petitioners’ favor, the
TKT appraisal proceeding could result in Shire writing a
substantial additional check.26 In fact, according to its most
recent 10-Q, Shire has established a specific reserve in the
amount of $38.6 million merely for the provision of interest
that may be awarded by the Delaware Chancery Court in
the appraisal proceeding.
6 | Schulte Roth & Zabel LLP
Before filing a petition for appraisal with the Court of
Chancery, a shareholder should exercise its right pursuant to
Section 262(e) of the DGCL to request a statement from the
corporation setting forth the aggregate number of shares
not voted in favor of the merger and for which demands for
appraisal have been received together with the aggregate
number of holders of such shares, which the corporation must
respond to in relatively short order. This statement enables the
shareholder to conduct a cost/benefit analysis in determining
whether it should pursue its appraisal demand, since the
corporation’s response will indicate how many people might
be expected to share the costs of the proceeding.
continued on page 8
FIRPTA continued from page 4
activist approach, the manager should undertake a
study to determine if the real estate asset values in the
target are likely to cause it to be a USRPHC. Obviously,
such a determination will not be conclusive, and the
manner for obtaining conclusive advice — asking the
target to make the determination — is not an option
for an activist investment fund. If a target anticipates
that the activist investors are FIRPTA-sensitive, it may
make a determination of its status using assumptions
that favor the valuation of real property assets or, in the
most extreme cases, may change its asset mix in order to
convert itself into a USRPHC. In this sense, USRPHC status
may serve as a sort of mild poison pill defense to make
itself a less appealing target to a foreign investor-funded
activist approach.
An activist investor may get a general idea of how a
target will likely fare in the USRPHC test based on publicly
available data. The regulations provide an alternative test
for USRPHC status based on book values. A corporation
is presumed to not be a USRPHC if it determines that
its U.S. real property interests make up 25% or less of
the total book value of the company’s trade or business
assets. While this presumption can provide some comfort
and penalty protection, it is often not as useful as it may
appear. In the first instance, meeting this alternative test
does not guarantee that the company is not a USRPHC. If
the target corporation determines that it is not a USRPHC
using the book value test, that determination will control
until the IRS makes a contrary determination or until the
target no longer meets the test. The presumption that the
company is not a USRPHC if it meets this alternate bookvalue test only applies to the extent the target company
makes the book value determination. However, in an
activist context, where the investing fund (as opposed to
the target) makes the determination based on the best
available data at the time that it makes its investment
decision, no presumptive protection exists and if it turns
out that the target fails the fair market value test (even
in hindsight) any assumed comfort from using the bookvalue test can be lost.
Withholding Rules Make This the Fund’s Problem
While it might be tempting for a fund manager to assume
that FIRPTA liability and compliance is something that
can be left to each affected foreign investor, this is not
the case. Withholding obligations at the domestic fund
partnership will force the fund manager to have to
confront the questions of whether or not the 5% publicly
traded stock threshold has been breached by any of the
foreign investors and, if so, whether or not the target is a
USRPHC. If both of these result in a finding that a sale of
target stock would be taxable to a foreign investor, the
fund and its manager will have an obligation to withhold
at the highest applicable tax rate against the foreign
investors’ gain on the sale.
Failure to withhold, even if based on a good-faith but
ultimately erroneous belief that a target is not a USRPHC,
will result in the fund and, potentially even the fund
manager, becoming liable for the amount which should
have been withheld, plus interest and penalties.
The issues raised in this article are intended to serve only
as warnings of what can happen if FIRPTA is ignored
when planning and executing an activist strategy. If the
decision is made that achieving a greater than 5% position
in the target’s stock is consistent with the fund’s strategy,
then it is prudent to ensure that foreign investors — and
fund managers — are not blindsided by the changing tax
consequences. g
Internet Publication continued from page 5
person may also utilize additional means of disseminating
such materials, including any print and/or electronic means.
In addition, the New Proxy Rules require the issuer to
indicate to soliciting persons, in responding to a request
for the shareholder list, which of its shareholders have
permanently requested paper copies of proxy materials.4
This would facilitate, as permitted by the New Proxy Rules,
conducting targeted solicitations to shareholders who
have not elected to receive paper copies, although any
shareholder receiving a solicitation may elect to receive
paper copies of the proxy materials at any time before the
conclusion of the relevant shareholder meeting even if it
had not previously made such a request. The New Proxy
Rules do not, however, allow for conditional “electronic
only” proxy solicitations whereby the soliciting shareholder
would solicit proxy authority only from shareholders willing
to electronically access its proxy materials.5
In conclusion, the New Proxy Rules provide for a costefficient means of distributing proxy materials for activist
shareholders in proxy contests. The rules do, however,
contain important limitations and conditions. For example,
the “notice and access” method is not available in the
context of business combinations. The rules also introduce
additional detailed procedural requirements beyond those
described in this article for those electing to utilize the
“notice and access” method. It is also important to note
that the New Proxy Rules do not alter certain SEC filing
requirements or applicable state law requirements currently
in effect. For these reasons, cautious planning is advised
before conducting a “notice and access” proxy contest. g
1
Reimbursement by the issuer of such expenses is available in certain
situations, but may require approval by the shareholders. For additional
information, see “Reimbursement of Proxy Contest Expenses for
Incumbents and Insurgents” by Marc Weingarten, Joseph Glatt and Morgan
Mirvis, in the Fall 2006 issue of this newsletter.
2
SEC Release Nos. 34-55146; IC-27671 (Jan. 22, 2007)
The rules also permit a reply card for requesting a paper or e-mail copy of
the proxy materials to accompany the Notice.
3
The SEC’s proposed rules would have required an issuer to also share all
information about its shareholders regarding electronic delivery. However,
the SEC did not include such requirements in its final rules due to privacy
concerns.
4
5
The availability of such conditional “electronic only” proxy solicitations
was initially proposed by the SEC in its release of the proposed rule.
activist investing developments — summer 2007 | 7
Delaware Rights continued from page 6
If, after examining the statement of shares or for any
other reason, the shareholder does not desire to complete
the process, he may withdraw his appraisal demand with
respect to some or all of his shares,31 at any time up until
60 days after the effective date of the merger without
consent and accept the terms of the merger.32 After the
60-day period, the appraisal right vests, and a shareholder
may withdraw an appraisal demand only with the written
consent of the corporation, and if a petition has been filed
permission of the court is also required.33
After deciding to proceed, a dissenting shareholder
must (unless the corporation has previously done so)
file a petition for appraisal with the Court of Chancery
demanding a determination of the value of the shares
of all shareholders entitled to appraisal within 120 days
after the effective date of the merger.34 Within 20 days
of being served with a copy of the petition, the surviving
corporation must file with the court a list containing
the names and addresses of all shareholders who have
demanded payment of fair value for their shares and with
whom agreements as to such value have not been reached.
Thereafter, the court will hold a hearing on the petition
and determine the shareholders who have perfected their
appraisal rights.35
After determining the shareholders entitled to an appraisal,
the court will appraise the shares, determining their fair
value exclusive of any element of value arising from
the accomplishment or expectation of the merger,36 as
discussed in the next section. The court will also determine
the fair rate of simple or compound interest, calculated
from the merger’s effective date to the payment date,37 if
any, to be paid upon such fair value.38
Thereafter, the court will direct the surviving corporation
to make payment of the applicable amounts to the
shareholders entitled to such payment. The costs of
the appraisal proceeding may be assessed by the court
against the parties in such manner as the court deems
equitable in the circumstances.39 However, as noted earlier,
upon application to the court, a shareholder may request
that the court order that all or a portion of the expenses
incurred by any one shareholder be shared pro rata among
all dissenting shareholders.40
A note of caution is warranted. Appraisal proceedings
require patience. A typical appraisal proceeding involves
cumbersome discovery, expert witnesses and trial resulting
in a process that could take at least two to three years.41
Delays and appeals are not uncommon and can stretch the
proceeding out further, with some proceedings lasting as
long as 10 to 15 years.42 As discussed, although the court is
usually willing to grant interest, the amount of the award is
uncertain and nevertheless will probably not approximate
the return an investor could realize on other investments.
Some have argued that given the time delay, although
most appraisal demands result in a fair value determination
in excess of the offered consideration in the merger, annual
returns to the petitioner often top out at 10%.43 Coupled
with this fact is the significant level of expense required to
pursue an appraisal remedy, which can cost approximately
$1-2 million over a three-year period.44 The majority of
8 | Schulte Roth & Zabel LLP
these costs are comprised of legal and expert witness
fees, which generally may not be shifted to the surviving
corporation. Although the ability to allocate a portion of
the expenses incurred by a petitioner shareholder among
all petitioners may temper the expense burden, this factor,
together with the nature of illiquidity the appraisal process
entails, must be considered before embarking on such a
campaign.
Valuation
The Delaware appraisal statute requires that shareholders
receive fair value for their shares, based on the
shareholders’ proportionate interest in the going concern
value (not the fair market value) of the target corporation
as of the merger’s closing date.45 While appraisal
determinations often result in awards in excess of the
consideration offered in the subject transaction, courts
can, and indeed have, determined fair value in amounts
lower than the offered consideration.46
However, fair-value determinations have become an
unpredictable exercise, with courts utilizing several
different approaches, sometimes independent of each
other and other times on a blended basis. Prior to the
decision in Weinberger v. UOP, Inc.47 (considered the
leading case on appraisal proceedings), the Delaware
courts only used the Delaware Block Method of valuation,
which values a going concern based on a weighted
average of asset value, market value and capitalized
earnings. The court applies the weight based on the
significance of each relevant metric to the subject
corporation; however, when employing this method the
earnings metric is typically given the most weight.48 The
Weinberger court held that the Delaware Block Method
was not to be the exclusive method in assessing fair value
and that “a more liberal approach must include proof of
value by any techniques or methods which are generally
considered acceptable in the financial community and
otherwise admissible in court.”49
In valuing a business, Delaware courts can take into
account any element of future value that are susceptible
of proof, including market value, asset value, dividends,
earning prospects, the nature of the enterprise,
externalities that might have depressed the current
market, cyclical earnings, and whether management timed
the merger in anticipation of a positive development.50
The appraisal process in certain circumstances, therefore,
may neutralize any attempted timing advantage sought
by the acquirer based on a cyclical period of shallow
earnings or unfavorable market conditions.51 Appraisal
valuation techniques cannot include synergies or other
benefits derived from the merger or other factors which
are speculative in nature, the rationale being that the
dissenting shareholder is entitled to his pro rata portion of
the going concern value of the subject corporation as in
effect prior to the merger. Therefore, similarly, a minority
discount cannot be assessed against the fair value of
the appraisal shares.52 However, since the fair value
determination is measured at a point in time immediately
prior to the effectiveness of the merger, and not on the
date the merger agreement was signed or the merger was
approved by stockholders, any increase in value in the
continued on page 9
Delaware Rights continued from page 8
enterprise flows to the benefit of the stockholder.53
Since Weinberger, Delaware courts have come to favor the
Discounted Cash Flow (“DCF”) model of valuation,54 where
the value of an asset is found to be the present value of
the discounted stream of future free cash flows that the
asset can generate. The DCF model relies on cash flow
projections, terminal value and a specified discount rate. In
assessing the future cash flows, the Delaware courts tend
to use managements’ projections, although each party
may use their own estimates so long as they are relevant.
Applying management’s projections can often benefit
the dissenter, as those projections may be more positive
than those of an acquirer. Nevertheless, competing DCF
valuations often lead to a high degree of unpredictability in
the process overall. Typically, a five-year period is applied,
although the measurement period could be shorter or
longer based on the particular circumstances. The discount
rate is computed based on the entity’s weighted average
cost of capital, where its cost of equity is derived using
the capital asset pricing model and its cost of debt is such
entity’s historical cost of debt financing.
While DCF is perhaps the predominant valuation
technique in appraisal proceedings, by no means does it
enjoy exclusivity. The courts have employed comparable
company and transaction analyses, earnings and asset
value tests, and market benchmarks. In fact, some recent
case law on the topic suggests that courts are now
more willing to apply other techniques. For instance,
in the Union Illinois case, the court took comfort in the
fairness surrounding the sale process and concluded that
the merger price resulted from an effective marketing
campaign and auction. Therefore, it used that price as
the benchmark and proceeded to determine whether any
additional value could be attributed to the shares between
the signing date and closing date of the transaction, and
in fact none was found. Interestingly, the court tested its
determination against the DCF approach and found that,
in applying the latter, a value lower than the merger price
would result, given the fact that post-merger synergies
would have to be stripped out of that valuation. In fact, the
actual appraisal award was approximately 7% lower than
the merger price, not taking into account the contingent
rights associated therewith.55
Other recent appraisal proceedings have utilized
comparable company and comparable transaction
analyses.56 The comparable company method involves
analyzing publicly traded industry competitors and
comparing their per share prices as a multiple of relevant
economic indicators, such as revenues, EBITDA or EBIT,
and then applying those multiples to the subject company.
The comparable transaction method does not employ
performance ratios as a multiple of market price but
instead compares comparable transaction prices to such
ratios.
Of interest will be whether the courts will assign any value
to offers made during go-shop periods that are in excess
of the merger consideration ultimately accepted by the
target’s board. For instance, with respect to the potential
takeover of Topps Inc. by Michael Eisner, despite the
existence of a go-shop provision in the merger agreement
which yielded an offer that was $1.00 more than the
consideration offered by Eisner, the Topps’ board rejected
this subsequent higher offer and proceeded to do business
with Eisner.57 Other examples of such board action include
the takeover deals for EGL Inc. and Genesis Healthcare
Corp.58 Activist investors, disappointed with these types
of board decisions, may decide to avail themselves of the
appraisal process and use these higher offers as support
for higher valuations.
Complicating matters further, the courts seem to be
inconsistent in the treatment of control premiums, minority
discounts and other similar factors as they relate to such
market based approaches. Unlike the DCF approach, which
is entirely free from such vagaries, other market-based
approaches, some argue, have the potential to embed
within them either minority discounts or control premiums.
For instance, some commentators assert that inherent in a
comparable company analysis is a minority discount, since
the resulting determination is based on the market price of
comparable companies. As with the comparable company
method, some point out the difficulty with the comparable
transaction approach, noting that it implies a control
premium and the analysis is based on transaction prices
that assume such premiums.
Nevertheless, some have demonstrated that an analysis
of appraisal awards granted over the past 20 years imply
median premiums in excess of 80%, interest awards of
over 9% and some awards of over 400% above the merger
price.59 A review of selected appraisal cases within the
past five years indicate that premiums within the range of
200–300% are not uncommon.60
Is Appraisal Advisable to Activist Investors?
The appraisal process is administratively complex
and potentially risky for the dissenting shareholder.
Shareholders seeking appraisal must be prepared to
invest considerable time and expense in pursuing their
rights under the Delaware statute. Even when the process
proceeds expeditiously, shareholders face the risk that the
court will undervalue the company and their shares.
Dissenters must initially bear all their litigation expenses
and do not receive payment until finally ordered by the
court, and then only receive reimbursement depending
on the number of other dissenters, each of whom must
pay their share of the costs. Dissenters’ expenses, such as
attorney and expert fees, can only be charged against the
value of the appraised shares and cannot be recovered
from the corporation. Even though ultimately divided
up amongst dissenters, in the event that an appraisal
proceeding devolves into a battle of experts, the fees
dissenters must absorb can become significant.
The valuation process carried out by the Court of
Chancery is also subject to substantial uncertainty. A
shareholder seeking appraisal runs the risk that the
appraised value received is less than the consideration
offered to shareholders in the merger. Additionally, the
continued on page 10
activist investing developments — summer 2007 | 9
Delaware Rights continued from page 9
amount of interest, if any, awarded on the appraised value
is subject to substantial uncertainties.
These factors may serve as practical disincentives for
activist investors to pursue appraisal rights. Perhaps
these disincentives account for the fact that, as one
commentator notes, only 33 Delaware cases dealing with
appraisal challenges had been reported between 1983 and
2004.61
However, and particularly where the facts demonstrate
that a less-than-robust sales process took place or where
evidence of non-arm’s length terms can be proven to
exist, an appraisal proceeding can result in a substantial
recovery to the dissenting activist investor who has the
patience and fortitude to see the process through to its
ultimate conclusion. These circumstances typically exist
in squeeze-out mergers by controlling shareholders,
transactions where management shareholders are on both
sides, short form mergers where shareholder approval
is not required by the DGCL, and unshopped or lightlyshopped deals. The TKT ruling provides the activist
investor with added comfort of diligencing his target after
the record date has been set in order to make a more
informed investment decision to seek or increase his
appraisal demand. In these situations, where the facts can
demonstrate the absence of fair dealing or fair value, the
dissenting investor can profit and the recent trends in the
Delaware Chancery Court are in the shareholder’s favor. g
1
Press Release, “Gabelli Clients Realize a More Than 40% Premium in
Settlement of Carter-Wallace Appraisal Litigation” (Nov. 1, 2004).
Marcel Kahan and Edward B. Rock, “Hedge Funds in Corporate
Governance and Corporate Control” (Univ. of Pa. Law Sch. Inst. For Law
& Econ., Research Paper No. 68, Sept. 13, 2006 at 13; Geoffrey C. Jarvis,
“States Appraisal Statues: An Underutilized Shareholder Remedy,” 13
The Corp. Governance Advisor (2005), available at http://www.gelaw.com/
Attorney%20Articles/Art%20%20State%20Appraisal%20Statutes%20GC
J%20Final% 20Shell%20Formatting.pdf; Prescott Group Small Cap, L.P. v.
Coleman Co., Inc., 2004 WL 2059515, at * 35 (Del. Ch. Sept. 8, 2004).
2
See Amendment to Tender-Offer Statement – Third Party Tender Offer,
available at http://www.secinfo.com/dVut2.u19j.d.htm.
3
See Amendment to General Statement of Beneficial Ownership, available
at http://www.secinfo.com/d12TC3.uTm.d.htm.
4
“National Home Health Accepts New Bid,” Associated Press, May 10, 2007,
available at http://news.moneycentral.ms.com/ticker/article.aspx?feed=AP+
date=20070501+id=677.
Konfirst v. Willow CSN Inc., CA No. 1737-N, slip op. at 2 (Del. Ch. Dec. 14,
2006).
16
Carl M. Loeb, Rhoades & Co. v. Hilton Hotels Corp., 222 A.2d 789, 793
(Del. 1966); In re Northeastern Water Co., 38 A.2d 918, 920–21 (Del. Ch.
1944).
§ 262(a)-(b); Neal v. Alabama By-Products Corp., 1998 Del. Ch. LEXIS 135,
at * 7 (Del. Ch. Oct. 11, 1988).
17
18
Berlin v. Emerald Partners, 552 A.2d 482 (Del. 1988).
19
Hilton Hotels, 222 A.2d at 792.
20
Finkelstein, supra note 7, at A-15.
Stephen Foley, “Shire Bill for TKT Might Rise as Court Battle Looms,” The
(London) Indep., Jul. 28, 2005, available at http://findarticles.com/p/articles/
mi_qn4158/is_20050728/ai_n14833072.
21
See Agreement and Plan of Merger Dated as of April 21, 2005 Among
Transkaryotic Therapies, Inc., Shire Pharmaceuticals Group PLC and Sparta
Acquisition Corporation § 9.02(c) available at http://www.secinfo.com/
dsvRx.z27d.d.htm.
22
23
Finkelstein, supra note 7, at A-8.
Id.; Abraham & Co. v. Olivetti Underwood Corp., 204 A.2d 740, 742–43
(Del. Ch. 1964).
24
In re Appraisal of Transkaryotic Therapies, Inc., C.A. No. 1554-CC at 5-8
(Del. Ch. May 2, 2007).
25
See Peg Brickley, “Icahn, Hedge Funds File New Suit on Shire’s
Transkaryotic Deal,” Dow Jones News Service, May 12, 2007 (estimating that
the appraisal proceeding could cost Shire an additional $90 million). This
estimate may be based upon Porter Orlin and Millenco’s belief that the
price of each share should be between $45 and $55, which would result in
an $8 to $18 premium on Shire’s $37 per-share offer. Id. See also, Katherine
Griffiths, “Shire’s Acquisition Target Warns of Financial Troubles if $1.6bn
Bid is Turned Down,” The (London) Indep., July 13, 2005, available at http://
news.independent.co.uk/business/news/article298773.ece; Shire Annual
Review 2005, available at http://www.shire.com/shire/financialReports/
ar2005/pages/review.html.
26
27
Union Illinois 1995 Inv. Ltd. P’ship v. Union Fin. Group, Ltd., 847 A.2d 340,
365 (Del. Ch. 2004).
28
Appraisal of Transkaryotic Therapies, C.A. No. 1554-CC at 6.
29
Id.
30
Id. at 8.
31
Union Illinois, 847 A. 2d. at 365.
32
Del. Code Ann. tit. 8 § 262(e).
5
Jesse A. Finkelstein & J. Travis Laster, “Appraisal Rights in Mergers and
Consolidations,” Corporate Practice Series (BNA) No 38-4th (2001) at A-3.
6
Voeller v. Neilston Warehouse Co., 311 U.S. 531, 535 n.6 (1941); In re Timmis,
93 N.E. 522, 523 (N.Y. 1910).
33
Dofflemeyer v. W.F. Hall Printing Co., 432 A.2d 1198, 1201-02 (Del. 1981); §
262(k).
34
§ 262(e).
35
§ 262(f).
7
8
Voeller, 311 U.S. at 535 n.6.
See Alabama By-Products Corp. v. Cede & Co., 657 A.2d 254, 258 (Del.
1995).
36
§ 262(g)-(h).
37
Charlip v. Lear Siegler, Inc., C.A. No. 5178, slip op. at 3-4 (Del. Ch. July 2,
1985).
9
10
Del. Code Ann. tit. 8 § 262(b)(1).
11
§ 262(b)(2).
12
§ 262(d)(1). Pursuant to Section 262(d)(2) of the DGCL.
In the case of a short-form merger or a merger approved by a written
consent of shareholders, written demand for appraisal must be delivered
within 20 days of the mailing of a notice to shareholders informing them of
the approval of the merger. See § 262(d)(2).
14
§ 262(a), (d)-(e). See Reynolds Metals Co. v. Colonial Realty Corp., 190
A.2d 752, 754 (Del. 1963).
13
15
Schneyer v. Shenandoah Oil Corp., 316 A.2d 570, 573 (Del. Ch. 1974);
10 | Schulte Roth & Zabel LLP
38
§ 262(i). A petitioner is generally awarded interest, absent a showing
of bad faith, even in circumstances where the fair value is lower than
the merger consideration offered in the subject transaction. Finkelstein,
supra note 7, at A-50-51. Courts generally award interest on a compound
basis acknowledging the reality of modern financial markets where a
sophisticated investor would not make an investment based on a simple
interest rate. Onti, Inc. v. Integra Bank, 751 A.2d 904, 926 (Del. Ch.
1999). Unless one of the parties to the appraisal proceeding proves by a
preponderance of the evidence what the appropriate interest rate should
be, the court must determine the rate. The provision of an interest award
is predicated on two related factors, (1) making a petitioner whole for the
opportunity cost over his investment borne during appraisal process and
(2) denying the corporation any windfall it may have due to the fact that it
had access to the petitioner’s funds during such period. Chang’s Holdings,
S.A. v. Universal Chems. & Coatings, Inc., C.A. No. 10856, slip op. at 2, 7 (Del.
continued on page 11
Delaware Rights continued from page 10
Ch. Nov. 22, 1994). Correspondingly, the Chancery Court will establish an
interest award employing both the surviving corporation’s cost of debt and
the “prudent investor rate,” which is defined as the “return on investment
that a hypothetical prudent investor could have received for the period
that the corporation had use of the fair value of the shares.” Finkelstein,
supra note 7, at A-52. It is important to note that the prudent investor rate is
generally an objective test and bears no relationship to the return to which
the particular petitioner investor is accustomed or has been yielding in its
funds. By contrast, the cost of debt factor is specific to the actual cost of
debt to which the surviving corporation is subject. Id. When neither party
has demonstrated what the appropriate rate should be, the courts have, on
occasion, defaulted to the “legal rate” of interest which, under Delaware
law, is 5% over the Federal Reserve Discount Rate. Id. at A-54.; § 2301.
39
§ 262(j).
40
Id.
Finkelstein, supra note 7, at A-69. According to one commentator,
contested appraisal proceedings last 727 days on average. See Randall
S. Thomas, “Revising the Delaware Appraisal Statute,” 3 Del. L. Rev. 1, 22
(2000).
41
42
Id.
43
Kaja Whitehouse and David Enrich, “Investors Tapping Arcane Law to
Win Bigger Merger Payouts,” Dow Jones News Service, Feb. 2, 2007.
See Elena Berton, “Hedge Funds Vex a Shire Takeover of Transkaryotic,”
The Wall St. J., Aug. 17, 2005 at B-8.
44
45
Alabama By-Products Corp., 684 A.2d at 294-96.
See Union Illinois, 847 A.2d at 364; Kleinwort Benson Ltd. v. Silgan Corp.,
1995 WL 376911, at *1 (Del. Ch. Jun. 15, 1995).
46
47
48
52
Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1145 (Del. 1989).
53
Glassman v. Unocal Exploration Corp., 777 A.2d 242, 248 (Del. 2001).
54
Finkelstein, supra note 7, at A-29.
55
Union Illinois, 847 A.2d at 340, 364-66.
56
Dobler v. Montgomery Cellular Holding Co., 2004 WL 2271592, at *8 (Del.
Ch. Oct. 4, 2004); Doft & Co. v. Travelocity.com Inc., 2004 WL 1152338, at
*4 (Del. Ch. 2004); Agranoff v. Miller, 791 A.2d 880, 891-95 (Del. Ch. 2001);
Borruso v. Communications Telesystems Int’l, 753 A.2d 451, 453 (Del. Ch.
1999).
Dana Cimilluca, New Meaning for Go-Shops at Topps, WSJ.com, Apr. 19,
2007, available at http://blogs.wsj.com/deals/2007/04/19/new-meaning-forgo-shops-at-topps/.
57
Dana Cimilluca, “Apollo-EGL Redux: Another Private-Equity Suit,” Wall
St. J., Mar. 28, 2007, available at http://blogs.wsj.com/deals/2007/03/28/
apollo-egl-redux-another-private-equity-suit/?mod=crnews; See also, Dana
Cimilluca, “Apollo Rips a Page From the Hedge-Fund Handbook,” Wall
St. J., Mar. 20, 2007, available at http://blogs.wsj.com/deals/2007/03/20/
apollo-rips-a-page-from-the-hedge-fund-handbook/?mod=crnews. But
see, “EGL: Special Committee Determines CEVA Grp Proposal Superior,”
Dow Jones Newswires, May 17, 2007, available at http://setup1.wsj.com/article/
BT-CO-20070517-709291-_bZ4yBN8KAd8TxISyzkUQA3F8hE_ 20080516.
html?mod=crnews. See also “Genesis Health Board Votes Fillmore New
Proposal Superior GHCI,” Dow Jones Newswires, May 15, 2007, available at
http://setup1.wsj.com/article/BT-CO-20070515-719774-w258smUklFJ5D
jUye2lVFDxGx1M_20080517.html?mod=crnews (in the months following the
decisions of the EGL Inc. and Genesis Healthcare Corp. boards to accept
offers with a lower per-share dollar offer, both companies’ boards accepted
alternate bids, both of which offered the companies’ shareholders the
highest dollar per-share bid).
58
59
Jarvis, supra note 3.
60
Id.
Weinberger v. UOP, Inc., 457 A.2d 701, 702 (Del. 1983).
Finkelstein, supra note 7, at A-45.
J. Travis Laster, “The Appraisal Remedy in Third Party Deals,” 18 Insights 4
(Apr. 2004).
61
49
Weinberger, 457 A.2d at 712-13.
50
Id. at 713.
51
Glassman v. Unocal Exploration Corp., 777 A.2d 242, 248 (Del. 2001).
Coming Events
Cutting Edge Alternative Asset Management Deals
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Public and Private Sales of Ownership in Hedge Fund
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For more information, contact Wesley Gross
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activist investing developments — summer 2007 | 11
authors
David E. Rosewater is a partner in the business
transactions group at Schulte Roth & Zabel.
His areas of concentration are mergers and
acquisitions, leveraged buyouts and all aspects
of activist investing.
Dan Kusnetz is a tax partner at Schulte Roth &
Zabel. He concentrates on structuring mergers
and acquisitions transactions, financings and
capital formation.
212.756.2208 | david.rosewater@srz.com
212.756.2095 | dan.kusnetz@srz.com
Joseph D. Glatt is a senior associate in the
business transactions group at Schulte Roth &
Zabel. His areas of focus are mergers and
acquisitions, leveraged buyouts and all aspects
of activist investing.
212.756.2338 | joseph.glatt@srz.com
Business Transactions Partners
Stuart D. Freedman
Robert Goldstein
Peter J. Halasz
Eleazer Klein
Michael R. Littenberg
Robert B. Loper
Benjamin M. Polk
Richard A. Presutti
David E. Rosewater
Marc Weingarten
André Weiss
Investment Management Partners
Stephanie R. Breslow
David Efron
Marc E. Elovitz
Steven J. Fredman
Kenneth S. Gerstein
Udi Grofman
Christopher Hilditch
Kelli L. Moll
Donald Mosher
David Nissenbaum
Paul N. Roth
Phyllis A. Schwartz
George M. Silfen
Tax Partners
Philippe Benedict
Dan A. Kusnetz
Kurt F. Rosell
Daniel S. Shapiro
Shlomo C. Twerski
Alan S. Waldenberg
919 Third Avenue, New York, NY 10022
return service requested
activist investing developments — summer 2007