In re: Appraisal of Transkaryotic Therapies, Inc., (Del. Ch., May 2, 2007), read opinion here, Chancellor Chandler decided a key issue regarding the standing requirements to bring an appraisal action pursuant to DGCL Section 262.
Prof. Larry Hamermesh has penned a thoughtful analysis of the case, with links to his related writings, on the Harvard Corporate Governance Blog here. Chancellor Chandler phrased the issue in the case, on a motion for partial summary judgment, thusly:
Whether a beneficial owner, under 8 Del. C. Section 262, must prove that each of its specific shares for which it seeks appraisal was not voted in favor of the merger?
Here is how the Chancellor answered the question:
" Only the record holder possesses and may perfect appraisal rights. The statute simply does not allow consideration of the beneficial owner in this context. The Legislature, and not this Court, possesses the power to modify Section 262 to avoid the evil, if it is an evil, that purportedly concerns respondents."
Moreover, the Chancellor relied on Delaware Supreme Court precedent for the principle that a corporation must look to its own corporate books as the sole evidence of stock ownership, as there "is no stockowner under Section 262 except a registered stockholder", and that for appraisal purposes the relationship between the registered stockholder (here, Cede & Co.) and the beneficial owner are not relevant issues.
Prof. Hamermesh was not alarmed about the risk that arbitrageurs would abuse the process with this ruling. He reasoned that:
"… one would ordinarily expect the purchase price in an arm’s-length acquisition to exceed the “fair value” to be awarded in appraisal litigation–in which “fair value” must, according to settled judicial interpretation of 8 Del. C. § 262(h), exclude synergistic merger gains.
Accordingly, there should ordinarily be no incentive for arbitrageurs to use the appraisal remedy “as an investment tool,” since those who seek appraisal under Delaware law have to refrain from receiving even the merger price itself until the conclusion of the appraisal proceeding."
But see here for a summary by the good professor of recent amendments to the DGCL (effective after the date of this opinion) that address a beneficial owner’s right to pursue an appraisal action.
As a parenthetical, a somewhat mundane but useful practical tidbit from this opinion that is helpful to remember for the practitioners among us. In footnote 5, the court noted its power, sua sponte, to grant summary judgment to the non-moving party, where the record shows that party is clearly entitled to relief (even if they did not file for summary judgment).
UPDATE: Arthur Dent has written a Memorandum here with his analysis of the case.