Domestic M&A

Delaware Supreme Court confirms that receipt of a pre-closing dividend conditioned on the closing of a merger transaction does not result in the abandonment of a stockholder’s appraisal right.

By: Chauncey Lane, Partner, Holland & Knight LLP

In In re GGP, Inc. Stockholder Litigation, No. 202, 2021 (Del. July 19, 2022) Plaintiffs alleged that the merger was structured to eliminate the statutory appraisal rights of the Company’s stockholders and that the proxy disclosures regarding appraisal rights were misleading. The Delaware Court of Chancery had dismissed the claims. On appeal, the Delaware Supreme Court affirmed the dismissal of the claim alleging an improper merger structure because “defendants did not, by paying a large portion of the merger consideration by way of a pre-closing dividend, structure the merger in a manner that effectively and unlawfully eliminated appraisal rights.” However, the Court reversed the dismissal of the disclosure claim because it found the complaint adequately alleged that defendants “consciously crafted the transaction and the related disclosures in such a way as to deter [the Company’s] stockholders from exercising their appraisal rights.”

The Court held that dividends conditioned on the consummation of a merger are treated as merger consideration, meaning the fair value of an entity declaring a conditional dividend is appraised as if the dividend had not been declared. The Court further held that the receipt by a stockholder of such a “conditional dividend that is merger consideration as a matter of law does not result in the abandonment of a stockholder’s appraisal right.” Thus, the otherwise eligible dissenters would have been allowed to seek appraisal despite their receipt of the pre-closing dividend, and “would have valued [the Company] as if none of the steps of the [t]ransaction . . . had taken place,” including both the pre-closing dividend and the consideration at closing. Therefore, plaintiffs failed to state a claim that the deal effectively deprived stockholders of the right to seek appraisal.

However, the Court held that “the disclosures, having described the merger and appraisal rights in a confusing manner, did not provide the stockholders the information they needed to decide whether to dissent and demand appraisal.” The Court explained that “it is reasonably conceivable” that a stockholder of the Company “who read the [p]roxy would have taken it at its word and concluded that appraisal rights were limited to the fair value of [the Company] after payment of the [p]re-[c]losing [d]ividend.”



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