The case Dieckman v. Regency GP LP, No. CV 11130-CB, 2019 WL 5576886 (Del. Ch. Oct. 29, 2019) does not concern appraisal rights – at least not directly. But the history of the merger in that case is a valuable reminder that an investor expecting to use the appraisal remedy must follow the transaction from start to finish.
In January 2015 ETP agreed to acquire Regency “for 0.4044 ETP units and $0.36 per common unit of Regency” quickly modified to “0.4066 ETP units plus $0.32”.
As of the announcement, an investor would have believed they had appraisal rights. Keep in mind that appraisal is available (in Delaware) when a transaction involves a cash component. An all-cash deal is the most obvious example: appraisal available. And on the other side, an all-stock deal does not allow appraisal. As the law currently stands, a hybrid deal, so long as there is a cash component, provides appraisal rights.
A couple weeks later, “[o]n February 18, 2015, the parties agreed to amend the terms of the Merger to replace the cash component with additional ETP units, based on the volume-weighted average price of ETP units for the five trading days preceding the closing of the Merger” – ultimately, Regency stockholders received into 0.4124 units of ETP per unit of Regency.
Did appraisal rights influence this decision? The public record does not make it clear, but as we’ve covered before, appraisal rights can and do influence thinking about transaction type, including the relevant consideration.
Notably, by removing cash but replacing it with a VWA price influenced stock (unit) component, the parties to this agreement were able to in some ways replicate cash. While cash has more certainty, the stock component still has marketable value. And, they got rid of any appraisal issues.