Delaware Law Updates
{ Banner Image }

Matulich v. Aegis Communications Group, Inc., No. 279, 2007, 2008 WL 187511 (Del. Jan. 15, 2008)


In this decision, the Delaware Supreme Court affirmed the Court of Chancery’s determination that a Certificate of Designation of Aegis Communications Group, Inc. (“Aegis”) denied the holders of Series B Preferred Stock a right to “vote” on a short-form merger of Aegis and World Focus (which owned over 90% of the common stock of Aegis), but granted the shareholders a contractual right of approval and consent prior to the consummation of the merger. As a result, World Focus was entitled to merge Aegis into itself in a “short-form” merger under DGCL Sec. 253. The appellant argued that the provisions of the Certificate of Designation providing a contractual right to consent to a merger were synonymous with the statutory right to vote provided in the General Corporation Law of the State of Delaware (the “DGCL”). The Supreme Court explained the difference between a contract right of preferred shareholders to consent to a merger, which may be granted to a shareholder pursuant to Section 212(b) of the DGCL, and the statutory right to vote on a merger pursuant to the short-form merger procedure in Section 253 of the DGCL, which requires that the parent own 90% of each class of shares entitled to “vote” on a merger in order to be legible to use the Section 253 procedure. The Supreme Court concluded that there is no legal impediment to giving preferred shareholders such a contractual right but not a statutory right. Finding that the contractual terms of the Certificate of Designation were unambiguous and expressly withheld any voting rights from the preferred shares, as compared with “blocking approval”, the Supreme Court held that the holders of Series B preferred stock had no right to vote on or challenge the merger. The use of the short form merger process was important because mergers effected under Section 253 are not subject to the test of entire fairness required in the case of long form mergers effected by controlling stockholders. See Glassman v. Unocal Exploration Corp., 777 A.2d 242 (Del. 2001).

The full opinion is available here