Krieger v. Wesco Financial Corp., C.A. No. 6176-VCL (Del. Ch. Oct. 13, 2011). Read opinion here from the Delaware Court of Chancery in this case of first impression.
Whether holders of common stock were entitled to appraisal rights under DGCL Section 262 when those stockholders could elect to receive merger consideration in the form of publicly traded shares of the acquiring company. Short Answer: No.
The minority shareholders of Wesco Financial Corporation filed this suit in connection with a forward triangular merger among Wesco, its parent, Berkshire Hathaway Inc., and a Berkshire acquisition subsidiary. Under the merger agreement, the minority stockholders of Wesco could elect to receive merger consideration in the form of either: (i) cash, (ii) publicly trades shares of the acquirer, or (iii) a mix of cash and publicly trades shares. Stockholders who failed to make an election received cash, and stockholders electing stock consideration received cash in lieu of fractional shares. The parties cross-moved for summary judgment on the availability of appraisal rights. The material facts were not disputed.
The Court reasoned that because Wesco common stockholders were not required to accept consideration other than stock listed on a national securities exchange and cash in lieu of fractional shares, they were not entitled to appraisal rights based on the statutory provisions of Section 262 of the Delaware General Corporation Law, 8 Del. C. § 262. Therefore, the Court granted summary judgment on the issue in favor of the defendants.
Notably, the Court quoted from a book on existentialism from the famed philosopher Jean-Paul Sartre, as follows: “What is impossible is not to choose. I can always chose, but I must also realize that, if I decide not to choose, that still constitutes a choice.” (For a former philosophy major, it is intriguing that a Chancery opinion would quote from the writings of a philosopher to buttress the reasoning in a legal opinion involving corporate law.) The Court also cited from a Chancery decision that explained as follows: “From a ‘legal viewpoint, inaction and action may be substantive equivalents, different only in form.’”
The Court also explained that Wesco stockholders could have elected any of three forms of consideration and still voted against the merger. The Court also observed that Section 262(a) does not contemplate that electing a form of consideration would affect the appraisal rights of a stockholder. Under Section 262(a) an individual stockholder may pursue appraisal rights if the stockholder makes a demand, holds shares continuously from the date of the demand until the effective date of the merger, and has “neither voted in favor of the merger nor consented thereto in writing pursuant to Section 228” of the Delaware General Corporation Law. Electing a form of merger consideration in accordance with the merger agreement, the Court emphasized, would not have any effect on the ability of a stockholder to perfect and pursue an appraisal.
The Court underscored its conclusion by pointing out that “electing a form of merger consideration in accordance with the merger agreement and the instructions in the proxy statement would not have an effect on a stockholder’s ability to perfect and pursue an appraisal.”
In sum, the Court granted summary judgment for the defendants based on its finding and reasoning that the holders of Wesco common stock were not entitled to appraisal rights because they were not “required by the terms of an agreement of merger or consolidation” to accept consideration other than stock listed on a national securities exchange or cash in lieu of fractional shares.