Out of more than 25 student submissions from competitive law schools across the country, Pierce G. Hand (J.D. ’16) received third place and $500 for his paper, “Using the Absurdity Principle & Other Strategies Against Appraisal Arbitrage by Hedge Funds,” in the 2016 Mendes Hershman Writing Contest.
“I originally drafted this paper as a writing component of a Mergers & Acquisitions course offered by Professor Jack Williams,” Hand said. “I conducted thorough research and spent a huge amount of time to produce it, so instead of just sitting on a great written product, I entered it into the contest. I’m more than happy that my paper was chosen as one of the top three out of all the submissions.”
The ABA Business Law Section sponsors the contest for law students. Submissions were judged on research and analysis, choice of topic, writing style, originality and contribution to current literature available on the subject.
Hand’s paper focused on appraisal arbitrage, an investment strategy where an investor acquires an equity position in a cash-out merger with the specific intention of exercising a statutory shareholder appraisal right under the Delaware Code (8 Del. C. § 262). After buying shares in a company that will merge, the investor can petition for appraisal of those shares, and a Delaware court will grant a judgment of what it determines as the shares’ fair value.
“This can be 200 percent to 300 percent more than the price of the shares in the merger,” Hand said. “Since hedge funds buy shares from shareholders usually at the proposed price in the merger, they can potentially gain—and in fact have gained—millions of dollars from this strategy.”
“My paper argues that this strategy is an abuse of the Delaware appraisal statute, which has its origin in facilitating mergers by giving dissenting shareholders fair value for their shares to keep such shareholders from blocking the merger,” he said. “Investing hedge funds, on the other hand, could care less about the merger and are essentially just buying their way into a lawsuit for appraisal, hoping to reap huge gains at the expense of liquidity needed to complete the merger and other stakeholders involved.”
Hand credits Professor Williams for providing him with great feedback and direction as he conceptualized and wrote the paper.
“Professor Anne Tucker also provided me some thought-provoking ideas to consider,” Hand said. “I am thankful for the quality instruction and guidance of my professors.”
To accept the award, Hand attended the Business Law Section’s Annual Conference in Montreal in April. The all-expense trip was paid for by the contest.
“As a third-year student, this was the perfect trip I needed before heading into the last finals period of my law school career,” he said. “I enjoyed the trip immensely and was able to meet several business attorneys and judges during the insightful conference workshops and presentations.”