According to this Financial Times report [$$$], shareholder activist campaigns targeted at M&A activity were at record levels in 2019, comprising almost half of all activist activity in 2019.
M&A activism can take many forms, but perhaps of most interest to those also interested in appraisal is activism that focuses on already announced deals. A shareholder dissatisfied with the deal price has a number of rights they can pursue – and one of those rights, which can and should inform the activist negotiation – is appraisal.
As a hypothetical example, a shareholder dissatisfied with an announced merger can attempt to replace the board (a proxy fight), publicly campaign against the merger and seek to drum up sufficient votes to defeat the merger via a vote (focusing on the important shareholder right of voting), launch certain kinds of litigation either on its own behalf or on behalf of the company (litigation rights), seek additional information (disclosure or inspection rights), among other tactics.
But the shareholder can also indicate it will vote against the deal and seek appraisal. This can have multiple benefits beyond mere opposition. For one thing, such a threat from a shareholder with a large enough position may alter the cost-benefit analysis of the deal itself. If an acquirer is going to face a significant dissent and appraisal demand, and thus potentially face the possibility that it will be judicially required to pay more than the merger price for a significant segment of the Company, that can create an incentive to either increase deal price, deal directly with the potential dissenter, or even withdraw the deal.
This is not purely hypothetical: we’ve covered before that deals sometimes contain “appraisal conditions” – including, for example, the 2018 Hyundai merger. Appraisal conditions, or “blow” provisions (i.e., they “blow up” the deal), are one area where appraisal and merger activism clearly meet. But perhaps more subtle, the possibility of an appraisal case shows management that they will need to defend their deal process before a court post-merger. That is to say: the merger itself does not cleanse a poor process of its problems – unlike, for example, some shareholder litigation focused on stopping a deal, which becomes generally moot with deal conclusion.
This implicit threat – that the process will be scrutinized, no matter what (note also that appraisal cases cannot be “dismissed” before discovery, unlike traditional shareholder cases) is a perhaps underutilized portion of the merger activist’s toolkit.