This Paul Weiss memo reviews the Chancery Court’s recent decision in In re United Capital Stockholders Litigation – in which Vice Chancellor Montgomery-Reeves dismissed “quasi-appraisal” claims in connection with a short-form merger between United Capital & its controlling stockholder. The plaintiff alleged that the notice of the merger sent to stockholders omitted various items of material information, but the VIce Chancellor concluded that none of them were material to the only decision the minority stockholders had to make – whether or not to seek appraisal.
Here’s an excerpt discussing the Court’s analysis:
In considering plaintiff’s claims, the Court, relying on the Delaware Supreme Court’s opinion in Glassman v. Unocal Exploration Corp., noted that in the context of a Section 253 short-form merger, the parent corporation is not required to establish entire fairness; rather, “absent fraud or illegality, the only recourse for a minority stockholder who is dissatisfied with the merger consideration is appraisal.”
The company is only required to notify the minority of the availability of appraisal rights, provide them with a correct copy of the appraisal statute, and disclose information material to the decision of whether or not to seek appraisal. The Court noted that a disclosure violation results in irreparable injury, which the Court may remedy through “quasi-appraisal.”
Detailing the contents of the eighty-page merger notice, the Court noted that the plaintiff used the financial statements attached to the notice to decide that the merger price’s $186.6 million implied total equity value significantly undervalued the company in view of, among other measures, total assets of $342.4 million (nearly twice the implied equity value). Thus, the Court noted that plaintiff’s allegations suggest that the financial disclosures gave plaintiff “the minimum information necessary to determine whether he could ‘trust that the price offered is good enough,’ or whether the price undervalued the company ‘so significantly that appraisal is a worthwhile endeavor.'”
– John Jenkins