Investors lost their right to an appraisal in Dell's merger when T. Rowe Price's voting system generated instructions to vote the investors' shares in favor of the transaction. Distinguishing some cases where petitioners seeking appraisal were not required to trace the vote of specific shares, the Delaware Court of Chancery held that because the evidence established how the shares had been voted, the petitioners bore the burden of proving that the record holder had not voted their shares in favor of the merger (In re Appraisal of Dell Inc., May 11, 2016, Laster, J.).
Voting oops. The case is complicated by interwoven factual issues and legal provisions—"a Byzantine and path-dependent system by which stockholders voted on the merger." Under Delaware law, Cede & Co. had the legal right to vote the shares and demand appraisal. But federal law, the Uniform Commercial Code, stock exchange listing standards, and private contracts all played a role, requiring Cede to vote the shares according to T. Rowe Price's instructions. T. Rowe, in turn, transmitted its instructions to Institutional Shareholder Services, which sent them down the chain by which the votes were eventually cast.
T. Rowe's default instructions were to vote for a transaction supported by management. Six portfolio managers decided to vote against the Dell merger, and those instructions were communicated to ISS. But Dell adjourned the shareholder meeting three times. The last time this happened, the meeting record replaced the previous record in the ISS voting system. This restored the default voting instructions, and the votes were cast in favor of the merger.
Share-tracing requirement. Delaware law places the burden on the petitioner to demonstrate compliance with the appraisal statute—including the requirement that the petitioner have dissented from the transaction. Two Delaware Supreme Court cases support the conclusion that the petitioner bears the burden of proving that the record holder (Cede, here) had not voted the shares in favor of the merger. A subsequent series of chancery court decisions, however, declined to impose a share-tracing requirement. These cases all involved "appraisal arbitrage," that is, the investors purchased shares after the merger's record date for the purpose of pursuing appraisal.
In those cases, the parties agreed that it was impossible for either side to show how Cede voted particular shares. Had the court imposed a share-tracing requirement, no stockholder who held through Cede would be able to seek appraisal. Instead of requiring tracing, the court equated the analysis of Cede's voting behavior with the aggregate voting totals provided at the meeting. The Dell situation, by contrast, presented the court with an issue of first impression: the evidence showed that Cede did in fact vote the specific shares for which appraisal was sought in favor of the merger.
The existence of this evidence distinguished the T. Rowe petitioners' situation from that of the appraisal arbitrage cases. Those cases allow a petitioner to make a prima facie case that the dissenter requirement was met by showing Cede held a sufficient number of shares that were not voted in favor of a merger to cover the appraisal class. But if the corporation can rebut that case with evidence of how the shares were actually voted, the petitioner has not met the dissenter requirement for those shares. This is necessary to avoid an absurd result permitting an appraisal petitioner to seek appraisal for the same shares it voted in favor of the merger—in other words, permitting a non-dissenter to pursue dissenters' rights. In this case, Dell proved that Cede voted the shares in favor of the merger, so no one could seek appraisal for those shares.
The case is No. 9322-VCL.
Attorneys: Stuart M. Grant (Grant & Eisenhofer P.A.) for Petitioners. Gregory P. Williams (Richards, Layton & Finger, P.A.) and John L. Latham (Alston & Bird LLP) for Respondents.
Companies: Dell Inc.; T. Rowe Price & Associates, Inc.; State Street Bank & Trust Company; Depository Trust Company; Cede & Co.; Institutional Shareholder Services Inc.
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