SEC/CORPORATE -

Delaware Chancery Court Decision Demonstrates Continuing Risk to “Appraisal Arbitrage”

In a stark application of the adage that one should be careful what one wishes for—because one may get it—on May 30, Vice Chancellor Sam Glasscock III of the Delaware Chancery Court issued an opinion in In re Appraisal of SWS Group, Inc. (C.A. No. 10554-VCG), a stockholder lawsuit seeking appraisal for the shares of SWS Group, Inc. (SWS), a financially struggling bank and broker-dealer firm. The appraisal claim arose out of the merger of SWS with Hilltop Holdings Inc. (Hilltop) in January 2015. The court’s decision on the fair value of the SWS shares reduced the price paid to dissenting stockholders from the merger price of $6.92 per share, payable in a mixture of cash and stock, to $6.38, payable in cash. This decision, and the resulting 7.8 percent reduction in consideration, demonstrates the risks inherent in “appraisal arbitrage.”