The right of appraisal accorded to a dissenting stockholder by the merger statutes is in compensation for the right which he had at common law to prevent a merger. At common law a single dissenting stockholder could also prevent a sale of all of the assets of a corporation. The legislatures of many states have seen fit to grant the appraisal right to a dissenting stockholder not only under the merger statutes but as well under the sale of assets statutes. The Delaware Legislature has seen fit to expressly grant the appraisal right only under the merger statutes.
Plaintiff is a stockholder of defendant Arco Electronics, Inc., a Delaware corporation. The complaint challenges the validity of the purchase by Loral Electronics Corporation, a New York corporation, of all the assets of Arco. Two causes of action are asserted, namely (1) that the transaction is unfair to Arco stockholders, and (2) that the transaction constituted a de facto merger and is unlawful since the merger provisions of the Delaware law were not complied with. Defendant has moved to dismiss the complaint and for summary judgment on the ground that the transaction was fair to Arco stockholders and was, in fact, one of purchase and sale and not a merger. The stockholder voluntarily dismissed the unfairness charge.
Did a de facto merger occur between Loral Electronics Corporation and defendant Arco Electronics, Inc.?
The Court held that a de facto merger did not take place and that the stockholder was not entitled to an appraisal of the assets. The Court noted that the doctrine of de facto merger had been recognized in the state, but that in previous cases, unlike the case before the court, there was a failure to comply with the sale requirements of § 271 and that no consideration passed to the selling corporation. The Court posited that the stockholder took the chance when he purchased his shares that the corporation's assets could be sold because the right of sale was granted by the Legislature. The de facto doctrine had been used in the past to protect shareholders from tainted transactions. Further, the right of appraisal given by the merger statute was compensation at common law for the shareholder's right to prevent a merger.