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By Michael Greene
Jan. 6 — The Delaware Chancery Court issued two Jan. 5 opinions addressing the standing requirements under Delaware's appraisal statute, 8 Del. C. § 262, as amended in 2007.
In both cases, the court determined that a petitioner seeking an appraisal for a merger does not have to prove that each of its shares' previous owners did not vote in favor of the merger; instead a petitioner only needs to show that it has not voted the share for which it seeks appraisal in favor of the merger.
In addressing policy concerns that not imposing this requirement could lead to a scenario where a majority of shareholders seek appraisal, notwithstanding that the transaction has been approved, Vice Chancellor Sam Glasscock III wrote that “[a]s a member of the judicial branch, it is inappropriate for me to presume to rewrite an unambiguous statute to address a problem that has not occurred, may not occur, and, in any event, is certainly not before me now.”
Accordingly, the court dismissed both motions for summary judgment, finding that the petitioner had standing in both cases.
The first appraisal action stemmed from Merion Capital LP's petition to perfect its appraisal rights with respect to a take-private merger of BMC Software, Inc.
As a consequence of its broker refusing to make a demand seeking an appraisal on its behalf, Merion became the record holder of its BMC shares.
BMC filed a motion for summary judgment alleging that Merion did not have standing to file its petition because § 262 only permits the appraisal of shares not voted in favor of the merger.
BMC claimed that Merion must demonstrate that each share it seeks to have appraised is a share that was never voted in favor of the merger—not just by itself, but by any owner—a burden that Merion concededly could not meet once it became the record holder of its own shares.
Vice Chancellor Glasscock noted that according to the plain language of § 262(a), “ the petitioner need only show that the record holder of the stock for which appraisal is sought: (1) held those shares on the date it made a statutorily compliant demand for appraisal on the corporation; (2) continuously held those shares through the effective date of the merger; (3) has otherwise complied with subsection (d) of the statute, concerning the form and timeliness of the appraisal demand; and (4) has not voted in favor of or consented to the merger with regard to those shares.”
He added that “[n]oticeably absent from this language, or any language in the statute, is an explicit requirement that the stockholder seeking appraisal prove that the specific shares it seeks to have appraised were not voted in favor of the merger.”
BMC claimed that the court should find a “share-tracing” requirement implicit in the statute because “stockholders could have purchased shares voted by their predecessors in favor of the merger, resulting in a theoretical possibility that appraisal could be sought for more shares than actually dissented in the merger vote.”
The court, however, dismissed this argument, finding that “the unambiguous language of the statute does not give rise to any such share-tracing requirement, and that Merion has otherwise complied with the requirements of Section 262.”
The second appraisal action stemmed from the acquisition of Ancestry.com Inc. by a private equity firm in a cash-out transaction.
In this case, Merion purchased shares of Ancestry and caused the record holder of these shares, Cede & Co., to file an appraisal demand for the shares it beneficially owned. After the 2007 amendment to § 262(e)—which allowed, for the first time, the beneficial owner to file suit in its own name—Merion filed a new petition for an appraisal of the shares.
Ancestry filed a motion for summary judgment arguing that this amendment requires Merion, not Cede, to show that the specific shares for which it seeks an appraisal have not been voted in favor of the merger, which includes a showing that the previous owners did not vote in favor of the merger.
Like in BMC Software, Vice Chancellor Glasscock dismissed this argument, finding that § 262 does not impose this requirement.
“I find Section 262 to be unambiguous, and thus, its plain meaning controls,” he wrote.
Vice Chancellor Glasscock noted that the amendment to § 262(e) occurred in the wake of the In re Appraisal of Transkaryotic Therapeis, Inc. decision, which found that the “the actions of beneficial holders are irrelevant in appraisal matters.”
He opined that “[n]otably, when presented with occasion to reconsider the role of beneficial owners in appraisal actions in light of modern trading practices, the General Assembly decided to allow beneficial owners to file a petition in their own name and seek a statement from the corporation, but did not otherwise amend Section 262 to allow beneficial owners to perfect appraisal rights by not voting in favor and making a timely demand; those provisions remain applicable only to ‘stockholders,' still defined as ‘record owner.'”
Similar to BMC, Ancestry additionally raised a policy–based argument—that the number of shares that qualify for appraisal could exceed the numbers not voted in favor of the merger.
“Such a concern may of course be addressed by the legislature, but it is insufficient to permit me to look past the unambiguous language of the statute,” Vice Chancellor Glascock wrote.
Steven T. Margolin, Marie M. Degnan and Phillip R. Sumpter, of Ashby & Geddes, Wilmington, Del. represented Merion Capital in the BMC Software case.
Collins J. Seitz, Jr., David E. Ross and S. Michael Sirkin, of Seitz Ross Aronstam & Moritz LLP, Wilmington, Del.; Yosef J. Reimer, P.C.; and Devora W. Allon and Ryan D. McEnroe, of Kirkland & Ellis LLP, New York, represented BMC Software.
Kevin G. Abrams, J. Peter Shindel, Jr. and Matthew L. Miller, of Abrams & Bayliss LLP, Wilmington, Del., represented Merion Capital in the Ancestry.com case.
Ronald A. Brown, Jr., Marcus E. Montejo and Eric J. Juray, of Prickett, Jones & Elliott P.A., Wilmington, Del., represented Merlin Partners LP and The Ancora Merger Arbitrage Fund, LP in the Ancestry.com case.
Stephen C. Norman, Kevin R. Shannon and James G. Stanco, of Potter Anderson & Corroon LLP, Wilmington, Del.; Stephen R. DiPrima, William Savitt, Adam M. Gogolak and Steven Winter, of Wachtell, Lipton, Rosen & Katz, New York, represented Ancestry.com.
To contact the reporter on this story: Michael Greene in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan Tuck at email@example.com
The BMC Software opinion is available at http://www.bloomberglaw.com/public/document/MERION_CAPITAL_LP_and_MERION_CAPITAL_II_LP_Petitioners_v_BMC_SOFT.
The Ancestry.com opinion is available at http://www.bloomberglaw.com/public/document/IN_RE_APPRAISAL_OF_ANCESTRYCOM_INC_No_8173VCG_2015_BL_486_Del_Ch_.
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