Delaware Merger ABC | Holger Spamann | December 10, 2017

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Delaware Merger ABC

The following paragraphs summarize the basic statutory rules for mergers of Delaware corporations: who needs to approve them, and who has appraisal rights. You should look up the cited statutory provisions and verify that this summary is correct.

Approval requirements

Generally, both corporations’ boards (DGCL 251(b)) and shareholders (DGCL 251(c)) need to approve the merger.

Exceptions:

- cash-deal, small deal (DGCL 251(f)): the approval by shareholders of a surviving corporation is not required if

- the surviving corporation’s charter is not amended through the merger, and

- the surviving corporation issues less than 20% of new shares in the merger

- “short-form merger” (DGCL 253(a)): if one of the constituent corporations (“parent”) already owns at least 90% of all classes of voting stock of the other (“subsidiary”):

- the approval of subsidiary’s board and shareholders is never required;

- the approval of parent’s shareholders is not required if parent is the surviving corporation and its charter is not changed in the merger

- “back-end squeeze-out / short-form merger” (DGCL 251(h) – since 2013): the approval by remaining target shareholders is not required if

- the target is a public corporation (listed or >2,000 shareholders),

- the bidder acquires the otherwise requisite majority of shares in a tender offer for all of the target’s stock pursuant to a merger agreement with the target, and

- the merger consideration is the same as the tender offer consideration.

Appraisal rights

NB: To perfect appraisal rights, the shareholder must not vote in favor of the merger, must deliver a written notice of objection before the vote, and must hold the shares through the effective date of the merger (DGCL 262(a)/(d)). Shareholders who demand appraisal do not receive the merger consideration; they only receive the value of their shares as appraised by the court (cf. DGCL 262(k)).

Appraisal rights are generally available for shareholders of both corporations (DGCL 262(b)).

Exceptions:

- “short-form merger”: the parent’s shareholders do not have appraisal rights (DGCL 251(h), 253(c)/(d), 262(b)(3))

- “market-out” (DGCL 262(b)(1)/(2)): Shareholders

- of a public corporation (listed or >2,000 shareholders), or

- whose approval vote was not required for the merger under DGCL 251(f)

do not have appraisal rights if they receive as merger consideration shares of the surviving corporation or shares of another public corporation.

Questions

  1. Do the exceptions to the shareholder approval requirement make sense?
  2. Do the exceptions to the appraisal remedy make sense?
  3. What is the point of the appraisal remedy, if any?
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December 16, 2017

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