June 26, 2018

Appraisal: Chancery Shoots Down De Facto Merger Claims

We’ve previously blogged about efforts to revive the de facto merger doctrine in Delaware in order to assert an appraisal claim in connection with Dr. Pepper’s merger with Keurig.  Earlier this month, in North Miami Beach General Employees Retirement Plan v. Dr. Pepper Snapple Group (Del. Ch.; 6/18), Chancellor Bouchard rejected those efforts.

The court distinguished the case from the LAMPERS v. Crawford decision highlighted in our prior blog. Although, like the dissenting shareholders in that case, the Dr. Pepper shareholders also received an extraordinary dividend, they did not relinquish their shares in the transaction. Here’s an excerpt from this Hunton Andrews Kurth memo summarizing the Chancellor’s reasoning:

The Court of Chancery rejected the plaintiffs’ argument that Dr Pepper’s stockholders were entitled to appraisal rights in connection with the transaction. First, the court said that under the Delaware General Corporation Law, appraisal rights are only available to a “constituent corporation” in the merger, which means a party being merged (whether the survivor or non-survivor).

Because Dr Pepper used a reverse triangular merger structure, its merger subsidiary was the “constituent corporation.” Second, the court held that even if Dr Pepper had been a “constituent corporation” to the merger, appraisal rights were still unavailable because Dr Pepper’s stockholders did not relinquish their shares in the transaction.

The memo notes that the decision provides increased certainty to transaction planners regarding how Delaware courts will assess transactions under the relevant merger and appraisal statutes.

John Jenkins