Appraisal : shareholder remedy or litigation arbitrage?

We present the first large-sample empirical study on the recent trends in the appraisal remedy—the right of shareholders of companies completing an eligible merger to petition the court for an improved price for their shares. Appraisal petitions have increased markedly over our sample from 2000 to 2014, and the composition of those bringing these suits has shifted from individual shareholders towards specialized hedge funds. Appraisal petitions are more likely to be filed against mergers with perceived conflicts of interest, including going-private, minority squeeze-outs, and acquisitions with low premiums, making them a potentially important governance mechanism. Appraisals yield sizable excess returns to the petitioners with an average annualized return of 32.9%, suggesting that appraisals also act as a litigation arbitrage. Finally, we explore the likely effects of two recent changes to the Delaware appraisal statute—regarding the minimum stake and interest payment—on the incentives to file appraisal petitions