|
Forum
Report:
Appraisal Rights Investments
Preliminary Plans for Panel Addressing Appraisal Rights Investments
Need for marketable appraisal rights as a convenient investment
alternative
Program schedule
The
recently reported Panel program supporting investor interests in
appraisal rights
has developed preliminary plans for defining and presenting proposed
policies and practices in a January open meeting.
The organizing members’ initial understandings of investor interests
and a schedule for addressing them are summarized below.
Need for marketable appraisal rights as a convenient investment
alternative
Most
investors understand that the price being offered in a typical
management buyout must be less than what the insider buyers and their
partnering professional investors think the company is worth. The
Delaware court has consistently reached the same conclusion in its
independent appraisals of a standalone company’s long term intrinsic
value.
Logically, then, many investors would prefer to get the higher
intrinsic value.
The right
to an alternative payment based on appraised intrinsic value is
therefore a theoretically ideal solution. Unfortunately, this ideal
right was designed in the 19th century with administrative rules that
are not well suited to modern investing,
involving inconvenient processes that require holding an unmarketable
interest until it is either settled or decided by a court. The recent
development of funds specializing in the management of appraisal
rights as a niche asset class provides a significantly improved focus
on investor interests, but does not address the needs of professional
fund managers for direct control, independent reporting, and
marketability of a right to the appraised value in a particular
company.
The purpose of this program is to make these rights to appraised value
a practical alternative for fund managers. The Dell project provided
an opportunity to develop the required independent management support
for a modern investor’s essential administrative and regulatory
requirements. Now that the support is available, we need to determine
how marketplace leaders can most effectively use it. As one Forum
participant observed, we need to do what was done by developing the
sensible concept of contingent value rights into an equally sensible
investment that won popular acceptance as a marketable “CVR.” What
investors need, simply, is an appraised value right that can be called
an “AVR.”
Program schedule
The following steps have been established for program participants to
define the issues to be considered, and to develop their individual
policies and practices:
|
■ |
Co-chairs of Panel committees formed for each key decision-making
constituency – preliminarily defined as value investors, pension
and indexed investors, and policy makers
– should be selected during the next two weeks. |
|
■ |
An initial Panel report of issues to be considered should be
distributed to all participants by December 2, inviting comment.
|
|
■
|
The Panel will present a report of proposals of policies and
practices to be considered in early January, at least one week
prior to the open meeting’s scheduled date. |
|
■
|
The program’s open meeting will be conducted in New York, with
optional online participation, at a date to be scheduled in
mid-January. |
|
■
|
The Panel will report consensus and alternative views established
at the open meeting and in subsequent communications, appending
any comments offered by individual Panel members. |
Your suggestions of issues to be considered, as well as possible Panel
members, will be appreciated.
GL – November 4, 2013
Gary Lutin
Chairman, The Shareholder Forum
575 Madison Avenue, New York, New York 10022
Tel: 212-605-0335
Email:
gl@shareholderforum.com
|