Tuesday, May 3, 2022
Below is an interesting and perhaps Twitter-relevant excerpt from Charles Korsmo & Minor Myers, What Do Stockholders Own? The Rise of the Trading Price Paradigm in Corporate Law, 47 J. Corp. L. 389, 394 (2022).
Expressed in the conventional analytical framework, Delaware now protects the stockholder's entitlement in a public corporation with a liability rule, where the stockholder's entitlement may be taken in a non-consensual exchange like a merger at any price exceeding the prevailing trading price.
This paradigm shift augurs dramatic change not simply in appraisal, but in all of merger law. Most obviously, the shift will necessarily affect the basic measure of damages in other contexts. Indeed, the Court of Chancery has already confronted this scenario: a breach of fiduciary duty that gave rise to no damages because the transaction was at a premium to the market price. But perhaps the most notable doctrinal reckoning involves Unocal and its progeny, which afford directors the power to defend against the threat of acquisitions where the price is “too low.” That power reached is fullest expression in the 2011 Air Products v. Airgas decision, a ruling that remains controversial. The board of Airgas blocked a $70 acquisition offer from Air Products, even though Airgas stock had previously been trading between $40 and $50 per share. The Court of Chancery held that the “inadequate price” justified the continuing defenses by Airgas, bringing the control fight to an end.
The continuing force of the reasoning behind Airgas is now in serious doubt. If the best evidence of the value of the corporation is the market price, as the supreme court held in Aruba, and the absence of higher bidders is sufficient demonstration of the attractiveness of the bid, as the supreme court held in DFC Global, and the opinion of informed insiders is insufficient to call into question the fairness of a market-tested bid, as the supreme court held in Dell, on what ground can Airgas still stand?