Appraisal petitioners who receive a fair value award are entitled to interest as set by statute. In particular, DGCL § 262 provides that “. . . interest from the effective date of the merger, consolidation, conversion, transfer, domestication or continuance through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger, consolidation or conversion and the date of payment of the judgment.”
Breaking this down, this provision sets three variables for the calculation of interest:
- the rate (5% over the federal reserve discount rate; today, 5% over the federal reserve discount rate is 10.5%);
- how often the judgment compounds (quarterly);
- how often the rate resets (as established from time to time).
Let’s focus on the second variable: compounding.
Because of the clear statutory mandate setting forth these inputs, many an appraisal lawyer would readily recite that appraisal interest is “compounded quarterly at the legal rate, taking into account any adjustments in the underlying Federal Discount rate.” In re AT & T Mobility Wireless Operations Holdings Appraisal Litig., No. CV 5736-VCL, 2013 WL 3865099, at *5 (Del. Ch. June 24, 2013).
But apparently there’s room for departing from that statutory directive. In a recent case involving the appraisal of a privately held M&A target, Hyde Park Venture Partners Fund III, L.P. v. FairXchange, LLC, No. 2022-0344-JTL, 2024 WL 3579932, at *24 (Del. Ch. July 30, 2024), the Chancery Court awarded interest to be compounded on a monthly basis, as opposed to quarterly, with the greater compounding frequency having the effect of increasing the interest awarded to the stockholders.