Although Delaware dominates when it comes to appraisal (as a result of its outsize attractiveness to U.S. companies as a place of incorporation), appraisal is not limited to the First State. As we’ve previously discussed, appraisal regimes also exist in other states including Massachusetts, Arizona, and Nevada. What about the Hawkeye State?
As a threshold matter, Iowa appraisal is limited by the market-out exception, and Iowa appraisal rights are not available if the target is traded in an organized market and has at least 2,000 shares and a market value of $20 million. Iowa, however, follows the Revised Model Business Act’s exception to the market-out exception (this “exception to the exception” is a common feature of appraisal regimes), allowing for appraisal rights with respect to publicly traded targets in interested transactions. See Iowa Code § 490.1302.
Like in Delaware, the Iowa appraisal statute requires a court to determine “fair value” of the stockholder’s shares. In Rolfe State Bank v. Gunderson, 794 N.W.2d 561 (Iowa 2011), the Iowa Supreme Court considered the exercise of appraisal rights in Iowa. As a result of a reverse stock split, a state bank offered to pay its minority shareholders $2,000 per share of stock based on an independent valuation that applied a minority discount and a lack of marketability discount. The minority shareholders exercised their appraisal rights and demanded $2,700 per share plus interest. Pursuant to the Iowa appraisal statute, the bank paid the minority shareholders $2,000 per share plus interest and then filed a petition with the district court to determine the fair value of the shares. The Iowa Supreme Court first reviewed the need to determine fair value as part of appraisal and then dove into whether minority and lack of marketability discounts would apply, ultimately concluding they did not.
Rolfe confirms that Iowa appraisal remains available in select instances and that a merger involving a company incorporated in Iowa can trigger appraisal rights, but the market-out exception must be considered.