The Delaware Chancery Court found that liquidation preference rights afforded to preferred stockholders did not apply in connection with a "going private" transaction effected by the company's controlling stockholder. The holders of the preferred stock were entitled to receive a $25 million liquidation preference if the company engaged in a change of control transaction which resulted in the stockholders receiving consideration from an unrelated third party. The "going private" transaction was found not to trigger the rights of the preferred stockholders. As a result, the $25 million liquidation preference was not subtracted in determining the company's equity value and the dissenting common stockholders of the company receiving a higher appraised price for their shares. In determining the appraisal price, the court ruled that the preferred stock should be treated on an "as converted" basis with the common stock for purposes of calculating the appraisal price.
In re: Appraisal of the Orchard Enterprises, Inc., C.A. No. 5713-CS (Del. Ch. Ct. July 18, 2012)