In In re GGP Stockholder Litigation, 2022 WL 2815820 (Del. July 19, 2022), an M&A transaction split the merger consideration into two parts: an oversized pre-closing dividend totaling over $9 billion, followed by a nominal post-closing payment of about 31 cents a share. In this case, a majority of the Delaware Supreme Court concluded that divvying up merger consideration in this manner does not defeat a dissenting stockholder’s appraisal rights. The majority held that a pre-closing dividend (at least one dependent upon the consummation of the transaction) is part and parcel of the total “merger consideration,” and therefore will be taken into account when determining the fair value of a stockholder’s shares prior to the transaction. However, the Court added, the proxy materials must be clear that the merger consideration subject to an appraisal action includes not only the post-closing per share payment, but also any pre-closing dividend—no matter how large it might be. Otherwise, a stockholder could (incorrectly) believe that the fair value of her shares will be appraised only after deducting the padded dividend from the value of the company, thus depleting the fair value of her shares and making the pursuit of an appraisal action highly unsavory. Here, the Court held that the proxy statement was less than clear in this regard, and upheld plaintiffs’ breach of fiduciary duty claims on a motion to dismiss. In reaching its decision, the Delaware Supreme Court provides important guidance to practitioners structuring deals with an eye towards diminishing the usual deluge of appraisal actions—shoehorning the lion’s share of merger compensation into a pre-closing dividend will not do the trick, nor can the accompanying proxy materials make that suggestion (no matter how subtly or perhaps unintentionally).
In Manti Holdings, LLC v. Authentix Acquisition Co., Inc., No. 354, 2020, 2021 WL 4165159 (Del. Sept. 13, 2021), the Delaware Supreme Court issued an important opinion affirming the use of stockholders agreements by and among Delaware corporations and its stockholders to waive stockholders’ rights of appraisal under Section 262 of the Delaware General Corporation Law. The Manti Holdings decision further solidifies Delaware’s strong policy preference of freedom of contract and private ordering, and confirms that Delaware corporations can have its stockholders waive appraisal rights. Note, however, that not every appraisal waiver may be valid. It also raises the question of what other seemingly “mandatory” stockholder rights may be waived in documents that are not a charter or bylaw.
Continue Reading Delaware Supreme Court Affirms the Use of Stockholders Agreements to Waive Appraisal Rights
In Fir Tree Value Master Fund, LP v. Jarden Corp., No. 454-2019, 2020 WL 3885166 (Del. July 9, 2020), the Delaware Supreme Court affirmed a Delaware Court of Chancery (Slights, V.C.) appraisal decision that adopted the respondent corporation’s unaffected market price as fair value, squarely rejecting petitioners’ argument that, as a matter of Delaware law, a corporation’s unaffected stock price can never equate to fair value. Under the appraisal statute, when determining the fair value of the shares on the closing date of the merger, the trial judge shall take into account “all relevant factors.” The Delaware Supreme Court’s decision makes clear that a corporation’s unaffected market price alone can be a “relevant factor” indicating fair value in mergers.
Continue Reading Delaware Supreme Court Affirms Appraisal Award Using Corporation’s Unaffected Market Price As Fair Value
In City of North Miami Beach Gen. Employees’ Ret. Plan v. Dr Pepper Snapple Group, Inc., C.A. No. 2018-0227-AGB, 2018 WL 2473150 (Del. Ch. June 1, 2018), the Delaware Court of Chancery (Bouchard, C.) denied stockholders of Dr Pepper Snapple Group, Inc. (“Dr Pepper”) appraisal rights related to the reverse triangular merger of Keurig Green Mountain, Inc. (“Keurig”) and a subsidiary of Dr Pepper created for the purpose of effectuating the merger. This decision clarifies standing requirements for appraisal petitions in this merger structure and continues Delaware jurisprudence holding that, to perfect appraisal rights, stockholders must at a minimum meet the requirements of 8 Del. C. § 262 as plainly written.
Continue Reading Delaware Chancery Court Strictly Construes Appraisal Statute to Deny Stockholders Appraisal Rights in a Reverse Triangular Merger
In In re Appraisal of Dell Inc., No. 9322 VCL, 2016 Del. Ch. LEXIS 81 (Del. Ch. May 31, 2016) (Laster, V.C.), the Delaware Court of Chancery determined that the fair value of the common stock of Dell Inc. (“Dell” or the “Company”) as of the effective date of a 2012 management buyout (“MBO”) was $17.62 per share, or $3.74 per share more than the merger consideration of $13.75 per share plus a $0.13 special dividend. Although Dell’s directors properly discharged their fiduciary duties, and the sale process included a go-shop period that triggered a bidding contest, according to the Court, the MBO underpriced the Company by more than $5 billion. Notably, the factors responsible for this divergence included limitations inherent in any MBO-driven sale process. The Court relied entirely on a discounted cash flow (“DCF”) analysis to determine fair value. The decision likely will further increase the frequency in which stockholders of Delaware corporations pursue statutory appraisal rights, particularly in the MBO context.
Continue Reading Delaware Chancery Court Rejects MBO Merger Price as Best Evidence of Fair Value in Appraisal Proceeding