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In re Appraisal of Ancestry.Com, Inc.

Court of Chancery of Delaware

January 5, 2015

IN RE APPRAISAL OF ANCESTRY.COM, INC.

Date Submitted: October 14, 2014

Kevin G. Abrams, J. Peter Shindel, Jr., and Matthew L. Miller, of ABRAMS & BAYLISS LLP, Wilmington, Delaware, Attorneys for Petitioner Merion Capital, L.P.

Ronald A. Brown, Jr., Marcus E. Montejo, and Eric J. Juray, of PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware, Attorneys for Petitioners Merlin Partners LP and The Ancora Merger Arbitrage Fund, LP.

Stephen C. Norman, Kevin R. Shannon, and James G. Stanco, of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Stephen R. DiPrima, William Savitt, Adam M. Gogolak, and Steven Winter, of WACHTELL, LIPTON, ROSEN & KATZ, New York, New York, Attorneys for Respondent Ancestry.com, Inc.

MEMORANDUM OPINION

GLASSCOCK, Vice Chancellor

Ancestry.com, Inc. ("Ancestry") was acquired in 2012 by a private equity firm in a cash-out transaction. Merion Capital L.P. ("Merion"), one of the Petitioners in this appraisal action, purchased its shares of Ancestry after the record date for that transaction. The shares were held in fungible bulk by a record owner, Cede & Co. ("Cede"). Merion caused Cede to file a timely appraisal demand for the shares beneficially owned by Merion. A stockholder may seek appraisal only for shares it has not voted in favor of a merger; Cede had at least as many shares not voted for the merger as those for which Merion sought appraisal. That is, Cede had sufficient shares it had not voted in favor of the merger to "cover" its demand on behalf of Merion. Merion then filed this petition for appraisal of the shares.

A plain reading of the appraisal statute as it existed prior to 2007-and case law construing it-indicates that it is the record holder of shares whose actions with respect to the merger determine standing to seek appraisal; the beneficial owner's actions are irrelevant. Ancestry points out, however, that Section 262 as it existed prior to 2007 required the record owner to file the appraisal action on behalf of the beneficial owner, that the 2007 amendment to Section 262(e) allowed, for the first time, the beneficial owner to file suit in its own name, and that Merion did so here. Thus, argues Ancestry, it is Merion, not Cede, that must show it did not vote in favor of the merger. Moreover, according to Ancestry, because Merion purchased its stock after the record date, it must show that its predecessors did not vote in favor of the merger with respect to these shares as well. Since it cannot demonstrate the latter fact, Ancestry posits, Merion lacks standing here. Ancestry accordingly seeks summary judgment.

Ancestry's arguments notwithstanding, a plain reading of the statute discloses that, for standing purposes, it remains the record holder who must not have voted the shares for which it seeks appraisal. Even if the focus were on the beneficial owner rather that the record owner, Merion did not vote in favor of the merger-to have standing, the statue requires that the stockholder must not have voted the stock for which appraisal is sought in favor of the merger; Section 262 imposes no requirement that a stockholder must demonstrate that previous owners also refrained from voting in favor. Accordingly, Ancestry's Motion for Summary Judgment is denied.

I. BACKGROUND FACTS

A. The Acquisition

Respondent Ancestry is "the world's largest online family history resource."[1] Its subscription-based websites allow subscribers to "discover, preserve and share their family history."[2] Merion, a Petitioner, is a hedge fund that buys stock following merger announcements for the purpose of seeking an appraisal as one of its investment strategies, a practice sometimes known as "appraisal arbitrage."[3]

In December 2012, Ancestry was acquired by the private equity firm Permira Advisors ("Permira") for $32 per share in cash. The transaction was announced on October 22, 2012 and the preliminary proxy was filed on October 30. The definitive proxy was filed on November 30, 2012, indicating a record date of November 30 and a meeting date of December 27, 2012.[4] Following the acquisition, two verified petitions for appraisal were filed. One, filed by Merion, sought an appraisal of 1, 255, 000 shares, [5] while the second, filed by two affiliated hedge funds, Merlin Partners LP and The Ancora Merger Arbitrage Fund, LP, sought appraisal of a total of 160, 000 shares.[6]

Merion first began purchasing Ancestry shares on December 4, four days after the record date.[7] On December 12, Samuel Johnson, the portfolio manager at Merion, notified Cede, the record owner of shares, that it would be exercising its appraisal rights.[8] The majority of Merion's purchases occurred between December 12 and December 17, when it purchased 1, 005, 100 of the 1, 255, 000 shares for which it seeks appraisal.[9] On December 18, 2012, Cede notified Ancestry that it was asserting appraisal rights with respect to 1, 255, 000 shares beneficially owned by Merion.[10]

In its Petition for Appraisal, Merion asserted that it "did not vote in favor of the merger" and that "[n]one of the petitioner's shares were voted in favor of the merger."[11] This assertion notwithstanding, Merion does not put forth any evidence to verify that, in fact, none of its shares were voted in favor of the merger by prior owners.[12] Merion purchased all of its shares on the open market after the record date and neither knows who the sellers were, [13] nor acquired proxies from prior owners to vote its shares.[14]

B. Procedural History

The appraisal petitions were consolidated and I held trial from June 17-19, 2014. In May 2014, a few weeks before trial, Ancestry filed its Motion for Summary Judgment, solely as to Merion's Petition, arguing that Merion could not show that the shares for which it sought appraisal were not voted in favor of the merger. The question before me on this Motion for Summary Judgment, therefore, is whether a beneficial owner is required to show that the specific shares for which it seeks appraisal have not been voted in favor of the merger.

I reserved consideration of the Motion for Summary Judgment until after full briefing. I heard oral argument on the Motion for Summary Judgment, along with post-trial argument, on October 14, 2014; this Opinion relates only to the Motion for Summary Judgment. For the following reasons, I deny the Respondent's Motion. The appraisal decision will issue separately.

II. STANDARD OF REVIEW

Summary judgment is appropriate when the moving party demonstrates that "there are no issues of material fact in dispute and the moving party is entitled to judgment as a matter of law."[15] The parties here agree that no genuine issue of material fact exists;[16] the only issue is whether, ...


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