In an opinion clarifying minority stockholder appraisal rights, the Delaware Court of Chancery has held that a stockholder of a public company is not entitled to appraisal rights under Delaware General Corporation Law §262 when the stockholder is given a choice among types of merger consideration, and the merger agreement expressly states that failure to make a timely election will result in receipt of cash only.
Wesco Financial Corporation, a publicly traded corporation, entered into a merger agreement with its parent company, Berkshire Hathaway Inc. and Montana Acquisitions LLC, a Berkshire subsidiary. Pursuant to the merger agreement, each of Wesco's minority stockholders, at the stockholder's election, was offered as consideration for its Wesco shares, either (i) cash, (ii) publicly traded shares of Berkshire Class B common stock or (iii) a mix of cash and the Berkshire stock. Failure, however, of the stockholder to elect one of the options, would result in that stockholder receiving cash for its Wesco shares.
Under Delaware law, appraisal rights are generally limited to situations where stockholders are required to accept cash for their shares (other than cash in lieu of fractional shares). Here, Plaintiff-stockholder, Krieger, asserted that appraisal rights were owed to stockholders that failed to make an election, since they were essentially required to accept cash. The Court of Chancery disagreed with Krieger, finding that because Wesco was a publicly traded company its stock fell within the "market-out" exception to the appraisal rights statute. The Court found further that the exceptions to the "market-out" exception (found under §262(b)(2), which restore appraisal rights in certain situations where stockholders are required to accept a certain type of merger consideration) were not applicable in this case, and that stockholders had a clear choice as to what type of merger consideration to accept.
Krieger v. Wesco Financial Corp., 2011 WL 4916910 (Del.Ch.)