In Matulich v. Aegis Communications Group, Inc., (Del. Supr., Jan. 15, 2007), read opinion here, the Delaware Supreme Court today affirmed a Chancery Court decision, summarized here. Delaware’s High Court explained the difference between a contract right of preferred shareholders to consent to a merger (see DGCL Section 212(b)), and the statutory right to vote on a merger pursuant to the short-form merger procedure in DGCL Section 253 that requires that the parent own 90% of the voting shares. The appellant shareholder argued that the short-form merger procedure was not available because the preferred shareholders had voting rights and if those shares were included, then the parent would not have 90% of the shares eligible to vote on the merger.
If done correctly, the short-form merger procedure in Section 253 eliminates exposure to an entire fairness scrutiny. The preferred shares in dispute were issued pursuant to a DGCL Section 151(a) Certificate of Designation and expressly withheld any voting rights from the preferred shares, as compared with "blocking approval". In those situations where the issuing document is silent on the topic, the preferred shareholders would have the same voting rights as the holders of common shares. But the court found the contractual terms here to be unambiguous and not susceptible to different reasonable interpretations, thus agreeing with the Chancery Court’s dismissal under Rule 12(b)(6).