Appraisal Rights – Page 3 – Delaware Docket

Chancery Court Dismisses Appraisal Challenge Based on Re-Titling of Shares, But Advocates For a Different Approach

Jul 27 2015

On July 13, 2015, Vice Chancellor J. Travis Laster issued his Memorandum Opinion in In re Appraisal of Dell Inc. in which he granted Dell’s motion for summary judgment against five institutions which owned Dell common stock and sought appraisal in connection with a going-private merger of the Company which closed in October 2013. Though Vice Chancellor Laster acknowledged that Dell’s motion “must be granted” based on existing Delaware precedent interpreting the requirement that a stockholder who wishes to pursue appraisal “continuously hold[] such shares through the effective date of the merger,” the Vice Chancellor advocated for and urged the Delaware Supreme Court to adopt the federal law approach which, if applied, would allow the petitioners’ appraisal challenge to proceed.

In February 2013, Dell agreed to a merger in which each publicly held share of Dell common stock would be converted into the right to receive $13.75 in cash, subject to the right of stockholders to seek appraisal under Section 262 of the Delaware General Corporation Law (“DGCL”). In July 2013, prior to the vote on the merger, five institutions who owned approximately 922,975 shares of Dell common stock (the “Petitioners” or “Funds”) in street name through their custodial banks caused Cede & Co. (“Cede”), the nominee of the Depository Trust Company (“DTC”) and the entity in whose name the shares were registered, to demand appraisal rights on their behalf .

Chancery Court Holds That Merger Price That Resulted from a Strong Sale Process and Extensive Negotiations Is the Best Estimate of Fair Value in an Appraisal Proceeding

May 07 2015

By David Bernstein and Marisa DiLemme

Merlin Partners LP v. AutoInfo, Inc., C.A. No. 8509-VCN (Del. Ch. April 30, 2015) (Noble, V.C.) concerns an appraisal proceeding under Section 262 of the Delaware General Corporation Law in which the Chancery Court found that, where there was a strong sale and negotiation process, and there were no reliable cash flow projections from which to make a discounted cash flow analysis and there were no sales of comparably sized companies in the same business, the price received in the merger was the best indication of fair value at the time of the merger.

Petitioners were former common stockholders of Respondent, AutoInfo, Inc. (“AutoInfo”) who exercised their appraisal rights in connection with AutoInfo’s merger with Comvest Partners (“Comvest”) at a price of $1.05 per AutoInfo share. AutoInfo was struggling financially and had begun a sale process in 2011 using an investment bank, Stephens Inc. (“Stephens”), which had long experience in the applicable industry, transportation. As part of the process, Stephens asked AutoInfo’s management to prepare five year financial projections that were “optimistic” to be used to market AutoInfo. Management had never prepared similar projections before and was doubtful of the validity of the results.

Chancery Court Denies Specific Performance of Retrospective Drag-Along Right Based on Prospective Terms of Contract and Declines to Decide Whether a Common Stockholder Can Contractually Waive Statutory Appraisal Rights Ex Ante

Mar 05 2015

By Michelle Repp and Marisa DiLemme

Halpin v. Riverstone National, Inc. concerns a group of minority stockholders seeking appraisal despite a “drag-along” provision in a Stockholders Agreement. The Chancery Court found that the “drag-along” provision was not enforceable in this merger situation because the stockholders received notice of the merger only after the transaction had been consummated and the Stockholders Agreement only gave a prospective “drag-along” right, not retrospective.

In Halpin, five minority common stockholders (the “Minority Stockholders”) of Riverstone National, Inc., a Delaware corporation (“Riverstone”), sought appraisal of their shares after a June 2014 merger of Riverstone with a third party. The merger was approved by the written consent of Riverstone’s 91% controlling stockholder, CAS Capital Limited (“CAS”), on May 29, 2014. Riverstone counterclaimed against the Minority Stockholders and sought summary judgment in its favor on the appraisal claims based on a stockholders agreement (the “Stockholders Agreement”) between Riverstone and the Minority Stockholders entered into in 2009 that included a drag-along obligation of the Minority Stockholders. The Chancery Court, ruling on the parties’ cross-motions for summary judgment, granted the Minority Stockholders’ motion and denied Riverstone’s motion.

Chancery Court Finds that Deal Price Represents Fair Value of Shares in Appraisal Proceeding

Feb 02 2015

By David Bernstein and Meredith Laitner

In response to demands for appraisal of Ancestry.com shares, the Chancery Court found that the agreed upon merger price, which was greater than the price determined by the Court’s discounted cash flow analysis, represented the fair value of the shares.

On January 30, 2015, the Delaware Chancery Court in In re: Appraisal of Ancestry.com, Inc., C.A. No. 8173-VCG (Del. Ch. January 30, 2015) (Glasscock, V.C.) issued its determination as to the fair value of shares held by petitioners at the time of Ancestry’s acquisition by Permira Advisors. Ancestry stockholders received merger consideration of $32 per share; petitioners in this case sought appraisal under Section 262 of the Delaware General Corporation Law.

In an appraisal proceeding, because neither the petitioner nor the respondent has a burden of proof, the burden falls on the Court to establish fair value. The Court said that the statute requires it to consider all relevant factors, and while the agreed upon price is one of the relevant factors, the Court must go beyond that.

With respect to sale itself, the Court found Ancestry’s auction process sufficiently robust to make the price it generated a reliable and relatively untainted indicator of value. However, it also made its own discounted cash flow analysis, after dissecting discounted cash flow analyses presented by petitioners’ and Ancestry’s experts, whose valuations differed significantly. Among other things, Vice Chancellor Glasscock found the experts’ analyses problematic because they were based on projections prepared by Ancestry’s management for the purpose of selling the company and for the purpose of making it possible to obtain a fairness opinion with regard to the price a buyer was likely to pay. In the end, Vice Chancellor Glasscock came up with a discounted cash value that was slightly below the agreed upon merger price. He then ruled that the sale price (i.e., the merger price) best represented the fair value, and said his discounted cash value analysis gave him comfort that no undetected factor skewed the sale process. It is noteworthy that if the Vice Chancellor had determined that the value of the Ancestry shares was the value yielded by his discounted cash flow analysis, the petitioners would have received less than the price paid in the merger.

In re Appraisal of Ancestry.com, Inc., C.A. No. 8173-VCG (Del. Ch. January 30, 2015)(Glasscock, V.C.)

Chancery Court Confirms Standing of Record Holder as of Appraisal Demand Date to Pursue Appraisal

Jan 07 2015

By David Bernstein and Meredith Laitner

In Merion Capital LP v. BMC Software, Inc., the Chancery Court held that a person who became the record owner of shares after the record date for voting on a merger could seek appraisal with regard to those shares so long as that person did not vote the shares in favor of the merger, without having to demonstrate that the shares had not been voted in favor of the merger by a prior record owner.

On January 5, 2015, the Delaware Chancery Court issued its ruling in Merion Capital LP v. BMC Software, Inc., C.A. No. 8900-VCG (Del. Ch. January 5, 2015) (Glasscock, V.C.), finding that petitioner Merion Capital LP had standing to seek an appraisal with regard to shares of which it became the record owner after the record date for voting on a merger without having to prove that those shares had not been voted in favor or the merger.

Chancery Court Confirms Beneficial Owner’s Standing to Pursue Appraisal Action

Jan 06 2015

By David Bernstein and Meredith Laitner

Amid debates around the merits of “appraisal arbitrage,” the Chancery Court held in In re: Appraisal of Ancestry.com, Inc. that the hedge fund petitioner did not need to prove that the Ancestry.com shares of which it became the beneficial owner after the record date for voting on an Ancestry merger had not been voted in favor of the merger in order to pursue appraisal rights with regard to those shares. The Court said any problems with DGCL Section 262 itself should be solved by the legislature, not the courts.

On January 5, 2015, the Delaware Chancery Court issued its ruling in In re: Appraisal of Ancestry.com Inc., C.A. No. 8173-VCG (Del. Ch. January 5, 2015) (Glasscock, V.C.), finding that petitioner Merion Capital L.P., the beneficial owner of Ancestry.com, Inc. shares, did not need to prove that the specific Ancestry shares with respect to which petitioner seeks appraisal were not voted in favor of an Ancestry merger in order to have standing to seek appraisal.

Mehta v. Smurfit-Stone Container Corp., C.A. No. 6891-VCL (October 20, 2014) (Laster, V.C.)

Oct 27 2014

By Scott Waxman and Caitlin Howe

Pro se plaintiffs, Ram and Neena Mehta (the “Mehtas”), owned common stock of defendant Smurfit-Stone Container Corporation (“Smurfit”), which, after reorganizing in a Chapter 11 bankruptcy, merged with a wholly-owned acquisition subsidiary of Rock-Tenn Company (“Rock-Tenn Sub” and “Rock-Tenn Parent”, respectively). The Mehtas challenged (i) decisions leading to Smurfit’s bankruptcy, (ii) the merger with Rock-Tenn Sub, and (iii) Rock-Tenn Sub’s failure to pay the Mehtas the merger consideration from the Rock-Tenn Sub/Smurfit merger. The defendants moved to dismiss the Mehtas’ claims for failure to state a claim, and Vice Chancellor Laster granted the defendants’ motion with respect to claims (i) and (ii); however, claim (iii) survives, with the caveat that the Mehtas are not entitled to indirect or consequential damages.

On June 21, 2010, Smurfit emerged from a Chapter 11 bankruptcy, having cancelled and re-issued 95% of its stock to its former creditors and the remainder to its shareholders, including the Mehtas who owned 1,486 shares after the reorganization. Less than six months later, Smurfit and Rock-Tenn Parent announced their plans for a merger for cash and Rock-Tenn Parent stock consideration. The Mehtas timely filed a demand for appraisal, and the merger was subsequently consummated. However, the Mehtas eventually withdrew their demand and never filed a petition for appraisal. The Mehtas did not receive any merger consideration.

In Re Astex Pharmaceuticals, Inc. Stockholders Litigation, Consolidated C.A. No. 8917-VCL

Aug 26 2014

By Wilson Chu and Jason Jones

On August 25, 2014, Vice Chancellor J. Travis Laster denied a stipulated dismissal order involving the payment of a “mootness fee” as part of the settlement of a disclosure claim because it did not comply with the requirements of In re Advanced Mammography Sys., Inc. S’holders Litig., 1996 WL 633409 (Del. Ch. Oct. 30, 1996).

Astex Pharmaceuticals, Inc. (“Astex”) and Otsuka Pharmaceutical Co, Ltd. (“Otsuka”) entered into an Agreement and Plan of Merger. Various stockholder plaintiffs filed lawsuits asserting claims against Astex, its Board of Directors, and Otsuka, and the court certified a class. One claim asserted that Astex’s stockholders lacked sufficient information to make an informed decision about tendering their shares or seeking appraisal. In response, Astex filed a supplemental Schedule 14D-9 containing additional disclosures on October 1, 2013. After the defendants moved for judgment on the pleadings, the named plaintiffs concluded that their remaining claims lacked merit. The parties then submitted a stipulated dismissal order, which included an agreement whereby defendants would pay a mootness fee relating to the disclosure claim. The court denied the proposed dismissal order pending further submission by the parties explaining how they complied, or proposed to comply, with Advanced Mammography.

Advanced Mammography provides that the board may exercise its business judgment to pay a mootness fee, but it is necessary to (i) notify the court and (ii) provide notice to the class and provide an opportunity for the class to be heard. In addition, “in the context of a claim that is acknowledged to be moot and in which no consideration has been paid to the class, it is not appropriate for the court to purport to release any claims of the class.” Id. at *1. Notice to the class allows the class to argue that the case is not moot, but rather that the mootness fee is in fact a buyout; and enables members of the class to object to such use of corporate funds. Id. In this case, the stipulated dismissal order did not provide notice to the class, and as a result, Vice Chancellor Laster denied the proposal and requested that the parties submit a revised order contemplating notice to the class.

InReAstex

Laidler v. Hesco Bastion Environmental, Inc. (May 12, 2014)

May 13 2014

By Annette Becker and Naomi Ogan

In Laidler v. Hesco Bastion Environmental, Inc., the petitioner, Patricia Laidler (a former employee of Hesco Bastion USA, Inc. (“Hesco”)) sought statutory appraisal pursuant to 8 Del. C. § 262 of her 10% interest in Hesco following a short-form merger of Hesco into Hesco Bastion Environmental, Inc., the holder of a 90% interest in Hesco (and respondent in this proceeding). Vice Chancellor Glasscock issued a memorandum opinion on May 12, 2014, determining the fair value per share of Hesco, the sole remedy for a freeze out merger, and explaining his methodology for the valuation.

Hesco and its affiliates design and manufacture large, mobile barrier units, designed to be filled with sand and rock and rapidly deployed for protection of land and assets in the event of a natural disaster or military emergency. Due to the variable demand for the units, Hesco’s sales and revenues varied. During November and December of 2011, shortly before the January 26, 2012 merger, third party valuations of Hesco stock were prepared in connection with the death of a stockholder who retained a controlling interest in the Hesco affiliated entities, and in connection with the put right provided to Ms. Laidler in accordance with a shareholder agreement to compel Hesco to repurchase her shares in connection with the termination of her employment. Ms Laidler was offered $180 per share by Hesco for her stock and she chose not to exercise her put at that time. Two other minority stockholders (each holding a 10% interest in Hesco) tendered their shares to respondent for $207.50 per share. Ms. Laidler was similarly offered $207.50 per share in connection with the short-form merger. Ms. Laidler declined the consideration offered and filed a petition for appraisal. In connection with seeking an appraisal Petitioner obtained an expert valuation, which valued the shares as of December 31, 2011 at $515 per share.

Catagory:Appraisal Rights