Voting Against the Merger

Yes, according to this posting.  Delaware law requires that a shareholder seeking appraisal must not have “voted in favor of the merger” (which is impossible for nonvoting common stock) nor “consented thereto in writing pursuant to Section 228.”  The mere fact that stock is issued as non-voting, as some recent IPOs have done, does not strip it of appraisal rights.

Seven years ago this week, in Roam-Tel Partners v. AT&T Mobility, C.A. 5745-VCS (Del. Ch. Dec. 17, 2010), then-Vice Chancellor Strine held that in a short-form merger, a stockholder can revoke its prior waiver of its appraisal rights within the twenty-day statutory election period, absent any prejudice to the corporation.  In that case, the stockholder submitted to the company a letter of transmittal along with his stock certificates, but then changed his mind, returning their (uncashed) check and timely demanding appraisal.  The court compared his initial decision in accepting the merger consideration to that of submitting a proxy in a long-form merger, which is freely revocable at any time prior to the shareholder vote.

In such transactions, shareholders are thus permitted to reverse their tender and opt instead to appraise so long as they do not actually accept the merger consideration and submit a timely appraisal demand within the statutory period.

The Vanderbilt Law Review published this note on Vice Chancellor Laster’s disqualification of stockholders in Dell who had inadvertently voted in favor of the merger, about which ruling we’ve posted before.  This note breaks down that ruling and discusses the court’s strict requirements for appraisal procedure and its affirmation that share-tracing is not required of appraisal petitioners.

On May 11, Vice Chancellor Laster issued an opinion in the Dell case denying the T. Rowe Price lead petitioner’s entitlement to proceed with its appraisal case on the grounds that it (inadvertently) voted in favor of the merger, when it should have abstained or voted against.  The ruling did not address the underlying valuation issue, which is still outstanding.

The highlights of this ruling:

  • The record evidence shows that T. Rowe instructed Cede via its custodian to vote in favor of the merger; the arguments that those instructions were mistaken and unintended are irrelevant.
  • The Transkaryotic, BMC Software and com line of cases allowing appraisal arbitrage is irrelevant, as those cases involved an absence of proof regarding how the petitioners’ shares were voted; here there is record evidence of how those shares voted. It is not enough to rely on Cede having generally voted enough shares against the merger as was true in the Transkaryotic cases. To read more from previous posts on this topic, click here and here.
  • Also irrelevant was the apparent confusion caused by the proxy statement that was issued after the shareholder meeting was rescheduled, telling shareholders that that there was no need to re-vote if they had previously voted (and here, T. Rowe had previously voted “Against”).
  • The court was unapologetic and unequivocal in reaching this decision. This is unlike the court’s July 2015 opinion which dismissed approximately 1 million petitioning shares based on the violation of the continuous holder requirement, in which the chancery court so much as asked the Supreme Court to reverse that decision.  That decision arose from certain petitioners’ custodians having directed Cede to re-certificate the shares in the names of their own nominees rather than that of Cede.
  • Rowe was given the merger price, without interest (the merger closed in October 2013).