October 20, 2011
Delaware: Appraisal Rights in Cash Election Mergers
From John Grossbauer of Potter Anderson: Recently, Delaware Vice Chancellor Laster delivered this opinion – in Krieger v. Wesco Financial – addressing several points about the availability of appraisal rights in a merger in which stockholders in a merging public company may elect to receive publicly traded stock or cash upon conversion of their shares in a merger. Vice Chancellor Laster makes several important points in this unsettled area of the law. First, he says that providing that shareholders who do not make an election receive cash does not mean those shareholders are “required” to accept cash so as to trigger the “exception to the exception” to appraisal rights in Section 262. Second, he opined that making an election to receive shares or cash prior to the merger does not waive a stockholders’ right to appraisal.
The merger at issue provided that any stockholder who elected to receive stock would get that, so the opinion does not necessarily apply to mergers in which the amount of stock that may be elected is capped and subject to proration. The Vice Chancellor also clarified that appraisal rights are class based and not determined on a stockholder-by stockholder basis.