Sometimes! Appraisal is almost always an issue for the shareholders of the target, or seller, corporation. But, in very rare instances, the shareholders of the acquiring corporation may have appraisal rights. Enter the 2005 case of Proctor & Gamble and Gillette. In 2005, Procter & Gamble (P&G) announced a multibillion dollar merger with Gillette, to be consummated a stock-for-stock reverse triangular merger. A P&G merger sub would merge into Gillette, giving P&G control of Gillette. (Regular readers of this blog may recall that a similar structure was used recently by Dr. Pepper, in a case where the Court found no appraisal rights.)
For the P&G merger – Gillette was Delaware corporation. And under Delaware law, stock-for-stock mergers (nevermind reverse triangular stock-for-stock mergers) lack appraisal rights. But under Ohio law, which governed P&G, a Ohio corporation, P&G shareholders would have appraisal rights. See P&G’s SEC filing. Under Ohio law, a P&G shareholder dissenting from the merger would be entitled to receive fair cash value of their shares – even though P&G would be the surviving company. The final result was the extremely odd event that the seller shareholders lacked appraisal rights, while the buyer shareholders had appraisal rights. The parties took this account in their deal, providing that the deal was conditioned on a 5% ‘blow’ provision – but as to the buyers shareholders exercising appraisal.
The lesson of the P&G case is that when dealing with non-Delaware appraisal, it is especially important for practitioners and investors to not assume the Delaware regime applies. Regimes outside Delaware, especially foreign regimes, may have rules allowing stock-for-stock appraisal; or, stranger still, appraisal for an acquirer’s shareholders. Every merger and every situation needs to be evaluated.