Camelot Portfolios, an Ohio-based investment fund, is launching a new appraisal-focused fund. Camelot is no stranger to the space, since it uses appraisal strategies in an existing fund. The new fund will join a number of other funds offering exposure to appraisal strategies. Appraisal arbitrage has long been a strategy of certain investment funds; the strategy isn’t new (see, e.g., this 2007 presentation on the topic), but remains somewhat misunderstood within the larger world of appraisal rights/dissenters’ rights.

Critically, appraisal rights/dissenters’ rights exist in numerous jurisdictions, and often exist for private and public companies. This “wider world” of appraisal usually involves aggrieved minority shareholders who are “historical” or “legacy” shareholders – i.e., owners of company stock before the announcement of a merger.

Somewhat different is appraisal arbitrage – a strategy whereby a nonhistorical holder purchases stock after the announcement of a merger. Historically the province of “merger arbitrage” firms, appraisal arbitrage adds an additional option to those firms’ toolbox. Whereas historically an arbitrageur who believed the merger price too low was stuck buying up some stock and hoping for a counter-bidder, appraisal arbitrage allows that investor to purchase stock and seek appraisal.

While appraisal arbitrage cases have dominated the Delaware landscape for years, it is important to remember that the world of appraisal remains far broader than just Delaware public-company appraisal arbitrage. Appraisal rights are critical investor protections, provide a useful check on management, and give minority shareholders leverage if a majority shareholder is acting in an oppressive manner or is taking an action that provides insufficient value to the minority interest.

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