In re: Appraisal of, Consol., C.A. No. 8173-VCG (Jan. 5, 2015), and Merion Capital v. BMC Software, C.A. No. 8900–VCG (Del. Ch. Jan. 5, 2015).

This case is important because it expands the number and type of eligible stockholders who can satisfy the statutory prerequisites for seeking an appraisal of their stock following a cash-out merger.  This case involves those who buy stock of a company after that company has announced a merger.  They buy the stock when they think that it is worth more than the merger price and thereafter file suit to ask the Court of Chancery to determine “fair value” of the stock.

One attractive feature of the Delaware appraisal statute is that it provides for interest to be compounded quarterly for both pre-judgment and post-judgment interest at 5% above the Federal Reserve discount rate.  Compared to current interest rates that are very low, many financial analysts regard this as a more profitable return on investment than if the cash price were accepted and otherwise invested.

The facts of this case involve the issue of whether or not the plaintiff had proof that his stock was not voted in favor of the merger.  Due to issues with the broker not following instructions and delay in putting the stock in the name of the stockholder, it was difficult to prove if the current holders shares had voted against the merger.  The court held that in both cases the plaintiff was not required to prove that its newly acquired shares voted against the merger.  Based on the facts of this case, in light of the number of shares that had not voted for the merger, it was mathematically impossible for more shares to demand appraisal than were qualified.

The same plaintiff, Merion Capital, was involved in both cases referenced above.  All the facts were slightly different in both cases due to timing issues and the lack of cooperation by the broker, but the common issue was whether the plaintiffs’ shares were voted in favor of the merger.

Despite this opinion, there is still a risk that, depending on the total number of shares compared to the total number that voted against the merger, that the result could be different if on a mathematical level there were more shares for which an appraisal was sought than voted against the merger.