In April 2018, shareholders of Dr. Pepper filed a lawsuit challenging a merger with Keurig – a deal they called convoluted and which was allegedly designed to deny them appraisal rights. One particular branch of that challenge, that the deal itself actually should have carried appraisal rights, was decided in June 2018 against the shareholders. Dr. Pepper shareholders will not have appraisal rights in this reverse triangular merger because, as the Delaware Chancery Court found, Dr. Pepper is merely the parent of the subsidiary merging with Keurig and not the “constituent corporation” the statute requires. A constituent corporation, the Court wrote, is one that is actually “being” merged or combined. Here, while Dr. Pepper’s original shareholders will end up as 13 percent minority shareholders in the combined entity, with Keurig shareholders owning the rest, the formalities of the merger are such that only a Dr. Pepper subsidiary is “being merged” – hence, no appraisal rights.
Further, the Court found that since an original Dr. Pepper shareholder would still be a Dr. Pepper shareholder (albeit, significantly diluted) after the ‘merger’ – the shareholder is not giving up their Dr. Pepper holdings, and thus, no appraisal rights.
Might this be a template for those seeking to avoid appraisal rights in the future? Perhaps. Though the Delaware court seemed concerned with the opposite effect: that applying appraisal rights in this instance may change the meaning of the appraisal statute for a relatively rare merger structure and specific set of facts. But with appraisal prominent in corporate counsel’s minds, perhaps a rare deal structure will become more common.