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Appraisal Rights and “Risk Arbitrage”

By Steve Hecht & Rich Bodnar on January 20, 2016
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In this working paper (available via SSRN), “Influencing Control: Jawboning in Risk Arbitrage,” authors Jiang, Li, and Mei consider the use of appraisal strategies, among others, by the so-called “activist” investor. In studying instances of appraisal arbitrage, among other activist strategies, the authors conclude that activist investors can utilize a variety of tools – including appraisal – to realize abnormal returns on M&A transactions.

In particular, Table 7 of the attached article (pages 50-51) presents the results of their analysis of such abnormal returns. The sample used in this study included only 14 mergers with appraisal actions, but their findings on “appraisal returns” are interesting: “The average (median) appraisal return is 15.6% (19.6%). The average (median) length between deal completion and the appraisal decision is 1,043.1 (1,106) calendar days,” or just over three years (footnote 14). In addition, Appendix A analyzes the Golden Telecom decision as an illustrative case in their study, in which the appraisal strategy experienced an annualized return of 15%.

Photo of Steve Hecht Steve Hecht

Steve Hecht is a go-to trial lawyer for hedge funds, institutional investors, family offices, university endowments, venture funds and other investors interested in utilizing the legal process to create value for their own investors. Whether by activist litigation, fiduciary duty claims, or appraisal…

Steve Hecht is a go-to trial lawyer for hedge funds, institutional investors, family offices, university endowments, venture funds and other investors interested in utilizing the legal process to create value for their own investors. Whether by activist litigation, fiduciary duty claims, or appraisal and other valuation strategies, Steve has extensive experience across the gamut of options for shareholders.  He regularly tries cases in Delaware Chancery Court and around the country for clients seeking outsized returns. Steve is a partner of Rolnick Kramer Sadighi LLP.

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Photo of Rich Bodnar Rich Bodnar

Rich is an experienced securities litigator focusing on value-generating legal strategy.  Rich brings to each matter a deep knowledge of the quantitative methods side of securities litigation, especially damages computation, event studies, econometrics/economics and the theories, tools, and strategies involved in the preservation…

Rich is an experienced securities litigator focusing on value-generating legal strategy.  Rich brings to each matter a deep knowledge of the quantitative methods side of securities litigation, especially damages computation, event studies, econometrics/economics and the theories, tools, and strategies involved in the preservation and maximization of the value of client’s securities claims.

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  • Posted in:
    Business and Commercial
  • Blog:
    Valuation Litigation & Shareholder Rights Blog
  • Organization:
    Rolnick Kramer Sadighi LLP
  • Article: View Original Source

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