Dissenters rights are the rights given to shareholders who chose not to agree to the terms of a takeover and continue to hold their stock forcing the acquirer to negotiate separately. The rights afforded to the stockholder are appraisal rights. These rights allows shareholders to have a judicial proceeding or independent valuator determine a fair stock price and oblige the acquiring corporation to repurchase shares at that price.
Dissenters rights, sometimes referred to as appraisal rights are available in many states and each may have its own unique interpretation as to the nature of the extraordinary corporate action that invokes this right, although virtually all states consider mergers and acquisitions as events that trigger appraisal rights.
Company Valuation
The dissenting stockholder must follow the requirements set out in the applicable state statute. Failure to do so may result in the stockholder permanently risks losing its right to an appraisal. It is vitally important the stockholder is aware of the differing rules employed by each individual state. Analysts may use multiple valuation methods in determining the fair stock price and value of the acquired company including the following
- asset-based methods
- income or cash flow methods
- comparable market data models
- hybrid or formula methods
Most occurrences of appraisal rights are based on consolidations or mergers and acquisitions. Dissenters rights guarantee that shareholders receive adequate compensation if a merger or acquisition overrides their wishes.
Dissenters Rights Example
The following text is taken from page 14 on the Form DEFM14A Definitive proxy statement relating to merger or acquisition made by Tiffany & Co. (TIF) on January 6, 2020 in relation to the proposed takeover by LVMH
“To exercise your appraisal rights with respect to your shares of our common stock, you must, among other things, submit a written demand for appraisal to the Company before the vote is taken on the merger proposal and you must not vote (either in person or by proxy) in favor of the merger proposal with respect to such shares. If you fail to follow exactly the procedures set forth in Section 262 of the DGCL, you will lose your appraisal rights. The requirements for exercising appraisal rights are further described in the section entitled “Appraisal Rights” beginning on page 117 and the text of the DGCL appraisal rights statute is reproduced in its entirety as Annex D to this proxy statement. We encourage you to read these provisions carefully and in their entirety. If you hold your shares of our common stock through a bank, broker or other nominee and you wish to exercise your appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal by your bank, broker or other nominee. In view of the complexity of the DGCL relating to appraisal rights, stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors promptly. The discussion of appraisal rights in this proxy statement is not a full summary of the law pertaining to appraisal rights under the DGCL, and is qualified in its entirety by the full text of Section 262 of the DGCL, a copy of which is attached to this proxy statement as Annex D.”
In this document, appraisal rights are clearly stated and it is shown where shareholders can obtain more information. DGCL is the most common set of rules followed as the majority of public firms are incorporated there and also serves as a guide to other states.
