In the first Chancery opinion of 2017, Vice Chancellor Montgomery-Reeves granted dismissal of a class action complaint which alleged breach of the duty of disclosure in connection with a short-form merger, in the decision of In re United Capital Corp. S’holders Litig., Cons. Case Nos. 11619-VCMR (Del. Ch. Jan. 4, 2017).
Lead Plaintiff Louis B. Geser (“Plaintiff”) owned shares of common stock in United Capital Corporation (“United Capital”). Defendant A.F. Petrocelli owned approximately 94% of the outstanding shares of United Capital before the transaction at issue. On September 30, 2015, Petrocelli through his controlled entities merged with United Capital at $32 a share, thus becoming the sole shareholder of United Capital.
Plaintiff’s complaint alleged the notice of merger failed to disclose the following information:
- The controller’s reasoning behind the merger price,
- Special committee’s process,
- Financial projections used to determine the value of the company,
- Information regarding the working capital and future use of cash of the company,
- The lack of independence of two members of the special committee, and
- The identities of two directors and a director’s spouse who participated in a multi-million dollar note with the company.
The Court granted defendants’ motion to dismiss on the grounds that all material information was disclosed in the notice and, in the realm of a short-form merger, any omitted information is not material to the decision of whether the minority stockholders should accept the merger consideration or seek appraisal.
In granting the motion, the Court found that plaintiff did not allege adequately that the omitted information was material to the decision to seek appraisal and the duty of disclosure was not violated. The Court found that Plaintiff’s sole remedy was one of appraisal.