Appraisal rights are creatures of statute, and as a result, for the most part, the conditions for appraisal are laid out by the legislature. Many statutes provide for appraisal rights in instances where there is a “merger” – what one might traditionally understand as an entity purchasing another entity, or purchasing all the stock of another entity. But merger-esque corporate actions can come in numerous flavors and types, and not all of them will carry appraisal rights. In many instances, the merger-esque transaction is not termed a merger at all, a notification of appraisal rights is not generated, and investors may be left in the dark about the fact that a merger-in-fact (but not called a merger) is occurring where they have valuable appraisal rights.
Enter the de facto merger doctrine. The de facto merger doctrine, usually associated with successor liability, looks to the underlying reality of a transaction to determine if it is actually a merger (and thus, would usually carry appraisal rights), or something else (that may not). Professor Bainbridge recently explored this topics with respect to California, highlighting a difference between California (which recognizes the doctrine) and Delaware (whose courts have a very restrictive view of the doctrine, to the point it is not often available).
In the context of appraisal, and in light of the Dr. Pepper decision we covered before, it’s important to note that not every transaction termed ‘not-a-merger’ will be free of appraisal rights. Critically, Dr. Pepper is a Delaware case. Appraisal rights in other states may well be available for de facto mergers where those states have a more expansive view of the de facto merger doctrine than Delaware does. The name of the transaction does not always control, and doing a careful evaluation of the transaction is critical to determining whether there may be otherwise unexplored remedies for an aggrieved investor.