In re United Capital Corp. Stockholders Litigation

The Delaware Court of Chancery was asked to award a quasi-appraisal to remedy a purported breach of the duty of disclosure in connection with a short-form merger. The merger, which was approved by a Special Committee of the Board of the target corporation, closed in September 2015.

The Court reiterated that in a short-form merger, the entire fairness standard of review is inapplicable and, absent fraud or illegality, the only remedy available to a minority shareholder dissatisfied with the merger consideration is appraisal. The Court further emphasized that, while entire fairness does not apply to such mergers, the duty of disclosure does. As a result, notice of the merger sent to the minority shareholders must disclose all “information material to the decision of whether or not to seek appraisal. . . .” Information is material if there is a “substantial likelihood that the undisclosed information would significantly alter the total mix of information already provided.”

In rejecting the plaintiff’s quasi-appraisal claim, the Court determined that the eighty-page notice sent to the minority shareholders was sufficient because it set forth: (i) sufficient financial data; (ii) the reasoning behind the parent corporation’s offering price; (iii) necessary information regarding the Special Committee’s determination of fair price of the target corporation; (iv) the target corporation’s amount of cash, cash equivalents, and the planned use of each; and (v) facts showing the independence and, where applicable, the potential conflicts, of the members of the Special Committee.

BOTTOM LINE: Notification of a short-form merger must contain all information that is substantially likely to significantly alter the total mix of information already provided to the minority shareholders.