In Merion Capital LP v. BMC Software, Inc., the Chancery Court held that a person who became the record owner of shares after the record date for voting on a merger could seek appraisal with regard to those shares so long as that person did not vote the shares in favor of the merger, without having to demonstrate that the shares had not been voted in favor of the merger by a prior record owner.
On January 5, 2015, the Delaware Chancery Court issued its ruling in Merion Capital LP v. BMC Software, Inc., C.A. No. 8900-VCG (Del. Ch. January 5, 2015) (Glasscock, V.C.), finding that petitioner Merion Capital LP had standing to seek an appraisal with regard to shares of which it became the record owner after the record date for voting on a merger without having to prove that those shares had not been voted in favor or the merger.
Merion is a hedge fund that specializes in “appraisal arbitrage” and as part of this strategy, purchased shares of BMC Software, Inc. after the record date for voting on a merger of BMC with a company owned by a private equity consortium but before the merger took place. Though Merion’s BMC shares were originally held of record by Cede & Co., Merion had the shares transferred of record to Merion’s own name prior to making an appraisal demand on BMC regarding the shares.
BMC argued that because the appraisal demand was made by Merion as record owner (rather than as a beneficial owner ofshares held of record by Cede), to establish standing in an appraisal action, Merion would have to prove that the specific shares as to which it was seeking appraisal had not been voted in favor of the merger by Cede or any other previous record owner. BMC posited that a “share-tracing requirement” is implicit in the purpose of Section 262 of the Delaware General Corporation Law and that, without such a requirement, stockholders could seek appraisal for a greater number of shares than the number that were not voted in favor of the merger.
Vice Chancellor Glasscock disagreed with BMC’s arguments and held that the standing requirement contained in DGCL Section 262(a) is directed to whether the record stockholder voted in favor of the relevant merger transaction, not how the specific shares were voted. The Court declined to consider the possibility that the number of shares as to which appraisal is sought could exceed the number that were not voted in favor of the merger, saying that the issue was not before the Court and it was up to the legislature, not the courts, to decide whether there should be a share-tracing requirement in DGCL 262.