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 In a pair of Monday rulings, Sam Glasscock, a vice chancellor of the
Court of Chancery, ruled that Radnor, Pennsylvania-based hedge fund
Merion Capital could seek an appraisal of its 1.8 million shares in
Ancestry.com and its 7.6 million shares in BMC Software Inc.
The decisions hinged on whether Merion could ask a judge to value
the stock even though Merion did not vote against the 2012 buyout of
genealogy website Ancestor.com by private equity firm Permira and
the 2013 acquisition of software company BMC by Bain Capital and
Golden Gate Capital.
Appraisal rights have traditionally allowed shareholders to seek a
better price in a deal they oppose. In recent years, hedge funds
have bought up blocks of stock in deals they considered undervalued
and then pursued appraisals to generate big payouts, a strategy
known as "appraisal arbitrage."
Merion bought its stock in between the record date, which determines
who is eligible to vote on the buyout, and the shareholder meeting
when the vote is held.
The companies argued that Merion Capital should be required to show
that the prior owner of the shares had abstained or voted against
the deal. Appraisal is not available to those shareholders who vote
in favor of a merger.
Glasscock ruled that it only mattered that Merion had not voted for
the deal, had given proper notice it was seeking appraisal, and held
the stock.
The cases were closely watched as a ruling against Merion could have
made its strategy much more difficult to pursue.
"There was a big open question if Chancery would kill appraisal
arbitrage," said Steven Hecht, an attorney with Lowenstein Sandler
who tracks the appraisal cases.
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Merion and lawyers for Ancestry.com and BMC did not immediately
respond to requests for comment.
Merion, founded by securities class action lawyer Andrew Barroway,
has been a leader in bringing appraisal arbitrage cases, which can
take years.
Unlike shareholder class action lawsuits, Merion does not have to
prove any wrongdoing by the company's board of directors, just that
the deal price was unfair.
The strategy has produced big returns. In 2012, Orchard Enterprises
Inc was ordered to pay Merlin Partners and others $4.67 per share
for their stake in the company, more than twice the $2.05 per share
merger price.
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Noeleen
Walder and Leslie Adler)
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