Cash/Stock Election Mergers: Recent Noteworthy Delaware Decisions

Michael A. Pittenger, Michael K. Reilly

In certain merger transactions, the merger agreement provides the stockholders of the target corporation with the ability to elect the form of consideration (e.g., stock, cash, or a mix of stock and cash) that each stockholder would prefer to receive in exchange for the conversion of their shares in the merger. Such merger transactions take a variety of forms and may provide, among other things, for caps on the amount of one or more forms of the merger consideration that may be elected, resulting in the pro rata allocation of merger consideration to certain holders if one form of the merger consideration is over- or under-subscribed. In some cases, the merger agreement does not limit the amount of either form of consideration that may be distributed, and thus the stockholders are entitled to receive their preferred form of merger consideration in full, regardless of the election choices made by other stockholders. In all events, however, merger agreements in such transactions necessarily provide for a default form of consideration payable to stockholders who fail to return their election forms indicating their merger consideration preference.

Merger transactions providing stockholders with the right to elect the form of their consideration raise certain unique issues under Delaware law, including issues with respect to the mechanics of the election process and appraisal rights. Two recent decisions of the Delaware courts provide guidance to M&A practitioners in this context. In Amirsaleh v. Board of Trade of the City of New York, Inc., the Delaware Supreme Court considered the merging corporations’ refusal to accept an election form delivered after both the initial election deadline and a subsequent acceptance period, concluding that the late election form must be accepted because the merging corporations had not provided sufficient notice of a retraction of the contractual waiver of the initial election deadline. In Krieger v. Wesco Financial Corporation, the Delaware Court of Chancery considered whether a cash/stock election merger triggered appraisal rights under Delaware law. The Court concluded that no appraisal rights were triggered where the merger agreement provided stockholders of a public target corporation with the uncapped right to elect consideration in the form of publicly listed securities, even though stockholders who did not make an election would receive cash in the merger by default. Each of those decisions is discussed below.

This article was originally published in the Fall 2011 issue of Deal Points: The Newsletter of the Committee on Mergers and Acquisitions of the Business Law Section of the American Bar Association.  This article or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

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