The Corporate Council of the Corporation Law Section of the Delaware State Bar Association has put out proposed amendments to Delaware law, including a technical change to Section 262, the statutory basis for Delaware appraisal. Richards Layton, a Delaware law firm, summarizes the proposed amendment:
The proposed amendments would amend Section 262(b) of the General Corporation Law to provide that the “market-out” exception to the availability of statutory appraisal rights will apply in connection with an exchange offer followed by a back-end merger consummated without a vote of stockholders pursuant to Section 251(h). As currently drafted, Section 262(b)(3) provides that appraisal rights will be available for any “intermediate-form” merger effected pursuant to Section 251(h) unless the offeror owns all of the stock of the target immediately prior to the merger. Practically speaking, under existing Section 262(b)(3), holders of shares of stock of a target corporation that is listed on a national securities exchange are entitled to appraisal rights in an intermediate-form stock-for-stock merger in which they receive only stock listed on a national securities exchange even if they would not be entitled to appraisal rights in a comparable “long-form” merger as a result of the market-out exception set forth in subsections (b)(1) and (b)(2) of Section 262. To address the incongruity between long-form and intermediate-form mergers with respect to the availability of appraisal rights in stock-for-stock mergers, the proposed amendments to Section 262(b)(3) provide that in the case of a merger pursuant to Section 251(h), appraisal rights will not be available for the shares of any class or series of stock of the target corporation that were listed on a national securities exchange or held of record by more than 2,000 holders immediately prior to the execution of the merger agreement as long as such holders are not required to accept for their shares anything except (i) stock of the surviving corporation (or depository receipts in respect thereof), (ii) stock of any other corporation (or depository receipts in respect thereof) that at the effective time of the merger will be listed on a national securities exchange or held of record by more than 2,000 holders, (iii) cash in lieu of fractional shares or fractional depository receipts in respect of the foregoing, or (iv) any combination of the foregoing shares of stock, depository receipts, and cash in lieu of fractional shares or fractional depository receipts. Accordingly, if the proposed amendments are enacted, exchange offers followed by a merger under Section 251(h) will receive the same basic treatment as long-form mergers requiring a vote of stockholders with respect to the availability of appraisal rights.
We’ve covered before whether appraisal is available in an all-stock deal: generally, it is not. We’ve also discussed the market-out exception and the way in which it is applied in Delaware.
A second technical change in the proposed amendments would clarify the information a corporation must disclose in an intermediate-form merger.
**Update: For another view on the proposed amendments, see Shearman & Sterling’s take.