Merion v. BMC: Share-Tracing Requirements Rejected for Appraisal Petitioners

Merion Capital LP and Merion Capital II LP (together, “Merion”) filed a petition for appraisal of stock in the Court of Chancery of Delaware under Section 262 of the Delaware General Corporation Law after acquiring over seven million shares of BMC Software, Inc. (“BMC”). Merion Capital LP & Merion Capital II LP v. BMC Software, Inc., No. 8900-VCG, 2015 BL 579 (Del. Ch. Jan. 05, 2015). BMC argued § 262 precluded Merion’s standing and moved for summary judgment. The court denied BMC’s motion for summary judgment and found Merion had perfected its appraisal rights in BMC’s common stock.

BMC, a Delaware corporation, entered into an Agreement and Plan of Merger (“Merger Agreement”) with Boxer Parent Company, Inc. and its wholly owned subsidiary Boxer Merger Sub Inc. (together, “Boxer”). Boxer was to acquire BMC for $46.25 per share of common stock. Merion acquired 7,629,100 shares of BMC common stock through a series of broker purchases on the public market after determining that the consideration offered in the BMC/Boxer merger undervalued the company. Merion then sought to issue a demand for appraisal of its BMC common stock.

Under § 262, “only the record holder of shares can make the statutorily required demand for appraisal on the corporation.” Merion’s broker refused to direct the record holder, Cede & Co. (“Cede”), to issue a demand for appraisal. As a result, Merion became the record holder of its shares by having its holdings in BMC stock withdrawn from Cede and registered directly with BMC’s transfer agent. Merion then issued an appraisal demand on BMC prior to the stockholder vote on the proposed Merger Agreement. More than two-thirds of the BMC stockholders voted in favor of the merger. 

Merion filed a Verified Petition for Appraisal of Stock to perfect its right to have its shares of BMC common stock appraised by the court. BMC then moved for summary judgment and argued § 262 required proof that each share Merion sought to have appraised was not voted by any previous owner in favor of the merger.

Interpreting the statute according to its plain language, the court determined the petitioner “need only show that the record holder of the stock for which appraisal is sought” held the shares on the date it made a demand for appraisal; continuously held the shares through the effective date of the merger; delivered a timely written demand for appraisal to the corporation before a stockholder meeting to vote on the merger was held; and has not voted in favor of the merger. The court refused to impose share-tracing requirements rejecting BMC’s argument that the legislative purpose favored the imposition of the requirement. Additionally, the court found the statute was “meant to enhance, not limit, rights to appraisal.”

With no dispute as to the material facts of the case the court found Merion, as a matter of law, satisfied all of the standing requirements set forth in § 262. Therefore, the court denied BMC’s motion for summary judgment and held Merion perfected its right to have its shares of BMC stock appraised by the court.

Primary materials for this case may be found on the DU Corporate Governance website.