777 A.2d 242 (Del. 2001)
Unocal Corporation is an earth resources company primarily engaged in the exploration for and production of crude oil and natural gas.1 At the time of the merger at issue, Unocal owned approximately 96% of the stock of Unocal Exploration Corporation, an oil and gas company operating in and around the Gulf of Mexico.2 In 1991, low natural gas prices caused a drop in both companies’ revenues and earnings.3 Unocal investigated areas of possible cost savings and decided that, by eliminating the UXC minority, it would reduce taxes and overhead expenses.4
In December 1991 the boards of Unocal and UXC appointed special committees to consider a possible merger.5 The UXC committee consisted of three directors who, although also directors of Unocal, were not officers or employees of the parent company.6 The UXC committee retained financial and legal advisors and met four times before agreeing to a merger exchange ratio of .54 shares of Unocal stock for each share of UXC.7 Unocal and UXC announced the merger on February 24, 1992, and it was effected, pursuant to 8 Del. C. § 253, on May 2, 1992.8 The Notice of Merger and Prospectus stated the terms of the merger and advised the former UXC stockholders of their appraisal rights.9
Plaintiffs filed this class action, on behalf of UXC’s minority stockholders, on the day the merger was announced.10 They asserted, among other claims, that Unocal and its directors breached their fiduciary duties of entire fairness and full disclosure.11 The Court of Chancery conducted a two day trial.12
The decision of the Court of Chancery is affirmed.13
Whether a parent corporation must establish entire fairness in a short-form merger under 8 Del. C. § 253?14
The short-form merger statute authorizes a parent corporation owning at least ninety percent of a subsidiary to merge the subsidiary into itself by filing a certificate of ownership and merger.15 The statute specifies that the resolution must state the terms and conditions of the merger including the securities cash property or rights to be issued paid delivered or granted by the surviving corporation.16 The statute also provides that stockholders of the subsidiary have appraisal rights as set forth in Section 262.17 This statutory framework permits the elimination of minority stockholders without the procedural requirements of notice vote or negotiation that characterize traditional mergers and supplies a simple fast and inexpensive process for accomplishing a merger.18
No. The Supreme Court of Delaware held that a parent corporation is not required to establish entire fairness when it effects a short-form merger under the statute.19
The appointment of special committees and engagement of advisors were unnecessary steps that the parent corporation took in an abundance of caution.20 The statute itself circumscribes the parent’s obligations to the minority and the summary procedure is inconsistent with any reasonable notion of fair dealing.21 The General Assembly’s intent controls and the parent satisfies its fiduciary obligations by following the truncated statutory process.22
A parent corporation therefore need not establish entire fairness including the fair dealing prong when it proceeds under the short-form merger statute.23 The equitable claim conflicts with the legislative design and must yield to the statutory procedure that eliminates the minority without traditional indicia of procedural fairness.24
Whether appraisal is the exclusive remedy available to minority stockholders objecting to a short-form merger absent fraud or illegality?25
Absent fraud or illegality the only recourse for a minority stockholder who is dissatisfied with the merger consideration in a short-form merger is appraisal.26 The statute’s purpose is to provide the parent corporation with a means of eliminating the minority shareholder’s interest in the enterprise after which the former stockholder has only a monetary claim.27 This exclusivity prevents the engrafting of equitable claims onto the statutory proceeding while allowing the appraisal to consider all relevant factors including elements of future value and damages where appropriate.28
Yes. The Supreme Court of Delaware concluded that appraisal constitutes the exclusive remedy for minority stockholders in a short-form merger absent fraud or illegality.29
The determination of fair value must be based on all relevant factors and the appraisal proceeding supplies the appropriate forum for any dispute over value.30
Whether the Notice of Merger and Prospectus provided adequate disclosure to former UXC stockholders regarding the merger terms and appraisal rights?33
Yes. The Supreme Court of Delaware affirmed the Court of Chancery’s determination that the Notice of Merger and Prospectus did not contain any material misstatements or omissions.36
In this case the document stated the terms of the merger and advised the former UXC stockholders of their appraisal rights following the announcement on February 24 1992.37 The trial court applied settled law in rejecting the disclosure claims after conducting its review of the prospectus content.38
The minority stockholders received the information necessary to decide between accepting the merger consideration and pursuing appraisal.39