Section 15 Appraisal Rights Under Delaware Law

• Library: Bus Trans 2005

Under Delaware law, appraisal rights are granted to dissenting stockholders who perfect their appraisal rights upon the merger of two or more corporations. Del. Code Ann. tit. 8, § 262 (Westlaw through 2005 legislation). Delaware law does not grant appraisal rights to stockholders dissenting to the sale of all or substantially all of the assets of a corporation under Del. Code Ann. tit. 8, § 271 (Westlaw through 2005 legislation).

Section 262(d)(1) of the Delaware General Corporation Law requires that the corporation notify all stockholders at least 20 days before the meeting at which the stockholders will vote on the plan of merger that appraisal rights will be available to any or all shares of stock of the corporations subject to the plan of merger. Under § 262(d)(1), dissenting stockholders perfect their appraisal rights by (1) delivering a written demand for appraisal of the fair value of their stock to the corporation before the vote on the merger and (2) not voting their shares in favor of the plan of merger. Delaware law also requires that the surviving corporation provide, within 10 days after the effective date of the merger, notice to all stockholders who have perfected their appraisal rights that the merger became effective and the date thereof. Section 262(d)(2).

Appraisal rights for Delaware short-form mergers under § 253 are available only for the stockholders of a Delaware subsidiary corporation that is a party to the merger. See Del. Code Ann. tit. 8, § 253 (Westlaw through 2005 legislation). The constituent corporations, either before or within 10 days after the effective date of the merger, must notify each stockholder entitled to appraisal rights of the effective date of the merger. Within 20 days of this notice, the stockholder may make written demand for an appraisal of shares. Within 120 days after the effective date of the merger, stockholders may file a petition with the court to determine the “fair value” of the stock or accept the terms offered upon effect of the merger in accordance with § 262.

In In re Unocal Exploration Corp. Shareholders Litigation, 793 A.2d 329 (Del. Ch. 2000), the Delaware Court of Chancery further explained stockholders’ appraisal rights in the short-form merger. In 1992, Unocal Corporation implemented a short-form merger with its majority-owned subsidiary, Unocal Exploration Corporation. Several of the subsidiary’s minority stockholders challenged the “entire fairness” of the merger but never sought an appraisal. The court denied the plaintiffs’ fairness claims and held that, “absent fraud, gross overreaching, or other such wrongful conduct, appraisal is the exclusive remedy to minority stockholders in a short-form merger.” Id. at 338.

2. (§8.16) Determination of “Fair Value”

Because of the prevalence of companies, both large and small, being incorporated under the laws of Delaware, the familiarity of Delaware courts with corporate law as a result, and the frequency with which corporate law cases are heard by Delaware courts, this section discusses both Delaware and Missouri caselaw.

“Fair value” is not the same as “fair market value.” The Supreme Court of...