Joseph S. STAUFFER and Annabelle Stauffer, Plaintiffs,
STANDARD BRANDS INCORPORATED, a Delaware corporation, Michael J. English, Joseph H. Hoyt, Ralph J. Lisman, Joel S. Mitchell and Henry Weigl, Defendants.
[40 Del.Ch. 203] Alexander L. Nichols and Richard H. Allen, of Morris, Nichols, Arsht & Tunnell, Wilmington, for plaintiffs.
Richard F. Corroon, of Berl, Potter & Anderson, Wilmington, for defendants.
SHORT, Vice Chancellor.
Plaintiffs bring this action on behalf of themselves and all other stockholders of Planters Nut and Chocolate Company, a Delaware corporation [Planters of Delaware], similarly situated, to set aside the merger of Planters of Delaware into Standard Brands Incorporated, a Delaware corporation, under § 253 of the Delaware Corporation Law, or, in the alternative, for damages. Defendants have moved to dismiss the complaint for failure to state a claim on which relief can be granted.
[40 Del.Ch. 204] Prior to June, 1960 Planters Nut and Chocolate Company was a Pennsylvania
corporation [Planters of Pennsylvania] with 229,667 shares of common stock outstanding, of which 114,345 shares were owned by five trustees of three trusts known as the 'Obici Trusts.' In June, 1960 defendant Standard Brands Incorporated [Standard Brands] made an offer to the trustees to purchase their holdings of the common stock of Planters of Pennsylvania for a price of $105 per share. Two of the trustees agreed to sell at the price offered. The other three declined to sell at that price. Litigation ensued in Pennsylvania which resulted in a settlement on November 18, 1960 whereby Standard Brands paid to the trustees $115 per share for all of the shares held by the trusts. Thereafter Standard Brands made an offer to all other stockholders of Planters of Pennsylvania to purchase their shares at a price of $105 per share. As a result of the purchase of the shares held by the Obici trusts and the shares acquired from other stockholders pursuant to the offer to buy, Standard Brands became the owner of more than ninety per cent of all of the common stock outstanding.
On December 30, 1960 Standard Brands caused to be incorporated, as its wholly owned subsidiary, Planters of Delaware. On January 18, 1961 a notice was mailed to all stockholders of Planters of Pennsylvania, including plaintiffs, fixing January 30, 1961 as the date for a special meeting called to approve and adopt a plan of merger of Planters of Pennsylvania with and into Planters of Delaware. The notice also disclosed the intention of Standard Brands, following the merger of Planters of Pennsylvania into Planters of Delaware, to merge Planters of Delaware into Standard Brands pursuant to § 253 of the Delaware Corporation Law. The plan of merger was adopted at the stockholders' meeting on January 30, 1961. On February 1, 1961 Standard Brands, being the holder of over ninety-five per cent of the outstanding stock of Planters of Delaware, notified the minority stockholders thereof that it had, on that date, filed the required certificate evidencing the merger of Planters of Delaware into Standard Brands, that such stockholders would be paid cash in the amount of $105 for each of their shares, and that they had a right to an appraisal of the value thereof under 8 Del.C. § 262.
[40 Del.Ch. 205] The complaint alleges that at the time of the merger of Planters of Delaware into Standard Brands the real value of Planters stock was $150 to $160 per share. It recites that two of the directors of Planters of Pennsylvania continued as directors of Planters of Delaware, and that the other three directors of Planters of Delaware were either directors or officers, or both, of Standard Brands. All of these directors are named defendants in this action. Plaintiffs admit that the mergers were consummated in strict conformity with the governing statutory procedures, but their complaint alleges that, by reason of their absence from the country, they had no actual knowledge of the merger proceedings until after the consummation thereof.
Plaintiffs seek to have the merger of Planters of Delaware into Standard Brands set aside on the grounds, (1) that the price to be paid minority stockholders on the merger so grossly undervalues Planters stock as to constitute a constructive fraud on such stockholders, and (2) that Standard Brands, as the dominating stockholder, and the directors of Planters breached a fiduciary obligation to the minority by failing to determine and offer a fair price for their shares.
Plaintiffs' only challenge to the validity of the merger relates to the fairness of the price per share offered to minority stockholders as the final step to make the merger of Planters of Delaware into Standard Brands effective. Where this is the situation in a § 253 merger, that is, a dispute as to the value of the shares, or the adequacy of the price offered, the stockholder's remedy ordinarily lies in an appraisal proceeding under § 262. This is so because § 253 permits a parent corporation owning more than ninety per cent of the
stock of a subsidiary to eliminate the subsidiary's minority stockholders as participants in the continuing enterprise by the payment of cash. Coyne v. Park & Tilford Distillers Corp., Del.Ch., 154 A.2d 893.
Since the basis of plaintiffs' complaint is difference in value, defendants argue that the right to an appraisal affords a complete, adequate and exclusive remedy. On the other hand, plaintiffs say that it has long been the settled law of this state that a merger may be set aside as fraudulent where the terms offered therein are so unfair to minority stockholders as to be shocking to the conscience of the court [40 Del.Ch. 206] and that in such circumstances a dissenting stockholder is not confined to an appraisal proceeding under § 262. See MacFarlane v. North American Cement Corporation, 16 Del.Ch. 172, 157 A. 396; Cole v. National Cash Credit Ass'n, 18 Del.Ch. 47, 156 A. 183. Plaintiffs contend that the principle of the cited cases, and others on which they rely, applies as well to a merger under § 253 as to one under § 251 or § 252, which pertain to mergers by agreement of the corporations involved. These cases were all decided before 1957 when the Legislature amended § 253 by providing a procedure for the merger of a subsidiary and a parent corporation owning more than ninety per cent of the stock of the subsidiary. Subparagraph (a) of the amendment provides that a corporation owning at least ninety per centum of the shares of stock of any other corporation may file in the office of the Secretary of State a certificate of ownership and merger, and setting forth a copy of the resolution of its board of directors to merge the subsidiary into it upon such terms and conditions as therein contained, 'including the securities, cash or other consideration to be issued, paid or delivered by the surviving corporation upon surrender of each share of the subsidiary corporation * * * not owned by the parent corporation.' This subsection also provides for recording of a certified copy of the certificate in the office of the recorder of deeds of the county in which the principle office of either the parent or the subsidiary is located.
Subsection (b) of the amendment provides that upon the recording of the certificate pursuant to subsection (a) 'all of the estate, property, rights, privileges and franchises of the corporation * * * which did not survive the merger shall vest in and be held and enjoyed by the surviving corporation,' to the same extent as the same were before held by the corporation which did not survive, but subject to all liabilities and obligations of the corporation which did not survive.
Subsection (c) of the amendment provides for the relinquishment of the corporate name of the surviving corporation and assumption in place thereof of the name of a ...