On January 5, the Delaware Court of Chancery ruled that a beneficial stockholder has standing to bring an action for appraisal in its own name when the record stockholder’s actions have perfected the right of appraisal. The court found that Merion Capital LP, the beneficial owner of 1.25 million shares of Ancestry.com held in fungible bulk by the record holder Cede & Co. did not need to prove that the stock it purchased after the record date merger of Ancestry.com had been voted against the deal.
In so holding, the court focused its analysis on 8 Del. C. § 262, which establishes the right to appraisal of stock. The Delaware General Assembly amended Section 262(e) in 2007 to add that beneficial stockholders may file petitions for appraisal in their own names. The General Assembly left unchanged the standing requirement of Section 262(a) that the petitioner need only show that the record holder of the stock for which appraisal is sought: (1) held those shares on the date it made an appraisal demand; (2) continuously held the shares through the date of the merger; (3) has made a proper and timely appraisal demand; and (4) has not voted in favor of the merger with regard to those shares.
Seeking to thwart Merion’s appraisal demand, Ancestry.com argued that in allowing beneficial stockholders to bring appraisal petitions, such beneficial stockholders, and not the record holders, must show that they did not vote in favor of the merger. The court rejected Ancestry.com’s motion and allowed the appraisal to go forward, reasoning that Cede, the record holder who held the shares in fungible bulk, had perfected its standing by having sufficient shares not voted in favor of the merger to cover the number of shares for which Merion sought appraisal. Thus, having perfected its appraisal rights through the record holder, Merion could file in its own name in light of the 2007 amendment to Section 262(e).
The court further reasoned that, even if Section 262(a) imposed a voting prohibition on beneficial stockholders, Delaware law does not require a post-record date purchaser like Merion to establish that the previous owner of the shares did not vote in favor of the merger.
In re Appraisal of Ancestry.com, Inc., C.A. No. 8173-VCG (Del. Ch. Jan. 5, 2015)