Quick facts
- Also called: dissenters' rights
- Statutory basis: 8 Del. C. § 262
- Who decides: the Delaware Court of Chancery
- Deadline to petition: 120 days after the merger takes effect
- Direction of travel: courts now lean heavily on the deal price
Appraisal rights let a shareholder who refuses a merger ask a court to decide what their shares were actually worth, and to be paid that instead of the merger price. It is a statutory alternative to accepting the deal.
In plain English
Normally, if a merger is approved, you take the price and it is over. Appraisal is the exception. You decline the consideration, follow a strict procedure, and ask the Court of Chancery to determine "fair value" for your shares.
You might do better than the deal price. You might do worse. The court is not obliged to find that the buyer underpaid.
What the statute requires
Section 262 grants appraisal to a stockholder who holds shares on the date of the demand, "who continuously holds such shares through the effective date" of the merger, who has complied with the demand procedure, and "who has neither voted in favor of the merger... nor consented thereto in writing." Such a stockholder is "entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares."1
Every element there is a way to lose the right.
The company must give notice at least 20 days before the meeting to stockholders for whom appraisal is available.1 The petition itself must be filed "within 120 days after the effective date" of the merger.1
The procedure, in order
- Receive notice that appraisal is available.
- Deliver a written demand before the vote.
- Do not vote in favour, and do not consent in writing. Abstaining is fine; voting yes is fatal.
- Hold the shares continuously through closing.
- Do not accept the merger consideration.
- File a petition in the Court of Chancery within 120 days of the effective date.
Miss any step and the right evaporates. Appraisal is a procedural obstacle course attached to a valuation dispute, and most of the losses happen on the course rather than at the valuation.
What "fair value" means, and how the courts changed their minds
Fair value is the company's value as a going concern at the time of the merger, excluding value arising from the merger itself. That last exclusion matters: you are entitled to the value of the business as it stood, not a share of the synergies the buyer expects to create.
For years, petitioners argued that a court running its own discounted cash flow analysis would find more value than the negotiated price. Two decisions in 2017 substantially closed that route.
In DFC Global Corporation v. Muirfield Value Partners, L.P., the Delaware Supreme Court addressed how much weight a court should give to the price produced by an actual sale process.3
Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd. is the better known of the two. Dell was taken private by its founder and Silver Lake Partners at $13.75 per share, "which was already a 37% premium to the Company's ninety-day average unaffected stock price." The Court of Chancery disregarded the market evidence and relied exclusively on its own discounted cash flow analysis to reach a fair value of $17.62, roughly 28% above the deal price.
The Supreme Court reversed. It held that the trial court "erred because its reasons for giving that data no weight... do not follow from the court's key factual findings and from relevant, accepted financial principles."2 The Court of Chancery had reasoned that investor myopia created a valuation gap and that the efficient market hypothesis failed for Dell. The Supreme Court did not accept that reasoning on those facts.
Verition Partners Master Fund Ltd. v. Aruba Networks, Inc. followed in 2019.4
The practical result is a strong presumption that a genuine, well-run sale process produces a price that is good evidence of value. Appraisal did not disappear. It stopped being an easy trade.
What this ended
Before 2017 there was a recognised strategy of buying shares after a merger was announced purely to seek appraisal, hoping for an award above the deal price and collecting statutory interest in the meantime. Once courts began deferring to deal price where the process was sound, the expected value of that trade fell sharply.
Appraisal is now most useful where the process was not sound: a controller on both sides, a rushed or closed sale, an obvious conflict. In those cases the deal price is exactly what a court is willing to look behind.
Where founders actually meet this
Not in your own financing rounds. You meet it when your company is sold and a shareholder does not agree with the price, most commonly in a squeeze-out where the buyer already controls the company.
The lesson runs the other direction from the one people expect. If you are on the board approving a sale, the quality of your process is the thing that protects the price. A real market check, a genuine negotiation, and documented independence are what make the deal price defensible. A conflicted or hurried process is what invites a court to substitute its own number.
Related reading
- Squeeze-Out Merger covers the transaction that most often produces appraisal claims
- Fiduciary Duty covers the standard the board's process is judged against
- Tender Offer covers the alternative route to acquiring control
- Liquidation Preference covers who receives the proceeds once value is determined