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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

How to say I Don't

Manisha Aurora
Tuesday, July 4, 2006
Manisha Aurora
Start-ups working out of garages bought by public listed companies for millions and everyone had a happy ending! Well that’s what the boom days were made up of.

But with the economy not going all gung-ho about start-ups now, there are may be many a twist to the fairy-tale of acquisitions. Often when start-ups reach the next level they go in for second round of venture capital financing or are ready to be acquired. The acquisition can be structured as a reverse triangular merger, sale of assets or a stock exchange. Whatever the method of the reorganization is, at the shareholder level it merely requires a majority vote i.e. 51 percent. So what if there are some naysayers to this reorganization in the corporation?

If you dissented to the corporation being bought over what is your recourse under the law? Appraisal or dissenter statutes are enacted by almost every state, which provides that enable the majority, approved acquisitions to be valid, while providing a fair exit to the dissenters. These statutes protect the minority who may claim that there was a breach of fiduciary duty by the majority shareholders that resulted in a less than fair value being meted out to them. However the minority cannot attack the validity of the merger but merely ensure that the valuation is fair.

Take the case of California for example, the California Corporation Code (section 1300 -1313) states that within 10 days of the transaction which results in a change of control the corporation must mail to each potential dissenter 1) the fair value of the company’s shares one day prior to the day of announcing the transaction which resulted in a change of control 2) a description of the procedure to be followed to exercise the dissenter rights 3) a portion of the dissenter rights statutes. The price stated in that notice is an offer to buy the shares at that price. Well, that’s information overload for you!

Often, when investors get all this information in the mail they really do not know what to do with it. So it goes from the mailbox to the recycle bin!

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