State statutes give dissenting shareholders an appraisal right in some, but not all corporate mergers. A widely adopted market-out exception denies appraisal if the shares are publicly traded. The rationale for market-out is that the public market offers a reliable valuation of the stocks and a convenient exit to dissenting shareholders. A major criticism of market-out is that market prices may not reflect the full value of the shares due to information asymmetry in mergers involving conflicts of interests. Delaware’s market-out approach is drastically different from that adopted by the Model Business Corporation Act (MBCA), but both have a significant number of followers among US jurisdictions. This essay highlights the flaws in Delaware’s approach and shows that the MBCA provides a better protection to dissenting shareholders. Fiduciary breach lawsuits are not adequate substitutes for appraisal due to procedural hurdles.
Lynn Bai & William A. Murphy, Shareholder Appraisal Rights: Delaware’s Flawed Market-Out Exception, 56 U. Mich. J.L. Reform Caveat ___ (forthcoming 2022).