The Use of Appraisal Arbitrage Strategies in Canada in Light of Dell

On May 31, 2016, the Delaware Court of Chancery ruled in In re: Appraisal of Dell Inc. that the “fair value” of Dell’s common stock at the time of its 2013 management-led buyout (MBO) was US$17.62 per share, over 28% higher than the US$13.75 per share the company’s stockholders received under the merger. In addition to being a high profile transaction, the decision is notable for a number of reasons, including the Court’s conclusions that factual circumstances undermined the reliability of the merger consideration as an appropriate indication of fair value, notwithstanding that the Court found that Dell’s board had fulfilled its duties to the company’s stockholders in agreeing to the sale.

The merits of the decision have been the subject of considerable debate, with some commentators criticizing the Court for departing from the merger consideration in a fully  shopped deal, and others focusing on the somewhat unique facts of the case. While the ultimate impact of Dell remains to be seen, given increasing focus on the potential use of “appraisal arbitrage” strategies in Canada, the decision provides an opportunity to consider how Canadian courts would likely approach facts similar to those in Dell, as well as structural differences between Canadian and U.S. dissent and appraisal regimes that may affect the implementation of these strategies north of the border.