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Appraisal Right

Often, a bare majority of a Company’s shareholders can approve a merger or acquisition, but minority shareholders who are against the potential merger may not believe they are getting paid a fair price for their shares. In order to protect these minority shareholders, many states provide for a fair and independent valuation of the share price and then mandate that the acquiring company pay that price in exchange for the shares.

Under Delaware’s General Corporation Law Section 262, shareholders that want to exercise their appraisal rights must vote against the merger. Somewhat counterintuitively, appraisal rights are available when shares are bought for cash, but are unavailable if the target company’s shareholders instead receive stock in the acquiring company.