City Of North Miami Beach General Employees’ Retirement Plan v. Dr. Pepper Snapple Group Inc., C.A. No. 2018-0227-AGB (Del. Ch. June 1, 2018)
In a reverse triangular merger, a parent company uses a subsidiary to acquire a target, with that subsidiary then being absorbed by the target. That is how the Dr. Pepper and Keurig companies structured their deal. Dr. Pepper would be the resulting parent company, with Dr. Pepper’s stockholders gaining cash but retaining their stock, and with Keurig’s stockholders gaining a controlling interest in Dr. Pepper. Certain Dr. Pepper stockholders sued claiming that they had appraisal rights to a judicially-determined fair value in connection with the transaction under Section 262 of the DGCL, which were being violated.
Appraisal rights under Section 262, however, are available only to shareholders of a “constituent corporation.” As this decision holds, that term means an entity actually being merged or combined, and not the parent of such an entity. Dr. Pepper’s stockholders therefore were not entitled to appraisal rights. The Court also added a second, alternative reason why appraisal rights were unavailable. Specifically, Section 262 contemplates petitioners who have been forced to give up their shares in connection with a proposed transaction. While they would become minority stockholders as a result of the deal with Keurig, Dr. Pepper’s stockholders are retaining their shares.