(CN) - The Delaware Chancery Court ruled that holders of common stock in Wesco Financial Corp. are not entitled to appraisal rights as part of a triangular merger agreement between Wesco, Berkshire Hathaway Inc. and a Berkshire acquisition subsidiary.
     Under the terms of the merger, which would see Wesco merge with Montana Acquisitions LLC, Wesco minority shareholders could convert their shares into a cash consideration of close to $385 per share, the same value in Berkshire Class B common stock, or a combination of both.
     The lead plaintiff John Kreiger, an owner of 10 shares of Wesco stock, had asked the court to block the merger, arguing that the stockholders should be given the right to determine if the deal was fair to shareholders. He also claimed that disclosures in a proxy statement were false and misleading.
     Vice Chancellor Travis Laster, who denied the plaintiff's injunction application in May 2011, again sided with Wesco on appeal.
     "The holders of Wesco common stock were not entitled to appraisal rights because they were not 'required by the terms of an agreement of merger or consolidation' to accept consideration other than stock listed on a national securities exchange and cash in lieu of fractional shares," Laster found.
     Wesco stockholders were not entitled to either a 'market-out' exception or an 'exception to the exception.' Under General Corporation Law, Laster noted, the exception to the exception: "restores appraisal rights to a class or series of stock otherwise covered by the market-out exception if the holders are required to accept certain types of consideration."
     "Under the terms of the merger agreement, holders of the class of Wesco common stock were not 'required' to accept any type of consideration that would restore appraisal rights under the 'exception to the exception ...'" the opinion states. "The merger agreement did not contemplate proration or impose any cap on the number of shares available for individual stockholders or the class as a whole. No other eventuality has been identified that could have resulted in holders of Wesco common stock being 'required' to accept appraisal-triggering consideration ... The 'exception to the exception' therefore did not apply, and appraisal rights were not available for shares of Wesco common stock in the Wesco-Berkshire merger."
     The plaintiff argued that Wesco stockholders who opted to receive cash were entitled to appraisal rights. But the Vice-Chancellor disagreed.
     "The plaintiff's approach assumes that appraisal is available on a stockholder-by-stockholder basis. The General Corporation Law in fact makes appraisal rights available on a transactional and class-wide (or series-wide) basis. Stockholders can choose individually whether to perfect and pursue their appraisal rights, but the underlying statutory availability of appraisal rights is not a function of individual choice.
     "To indulge the plaintiff's stockholder-by-stockholder approach would not lead to the conclusion that any Wesco stockholder was 'required' to accept cash. Wesco stockholders had a choice: they could make an election and select a form of consideration, or they could choose not to make an election and accept the default cash consideration," Laster wrote.
     Laster also found that Wesco shareholders were given "the right to elect a particular form of consideration on voting for or against the merger."
     "Wesco stockholders readily could have elected any of the three forms of consideration and still voted against the merger. Stockholders who opposed the merger, but who favored Berkshire shares if the merger were approved, simply could have elected to receive Berkshire shares and then either voted against the merger or declined to vote at all," ruling states.
     Laster also threw-out the contention that shareholders were "coerced" into receiving a cash consideration, ruling that Wesco's "erroneous disclosure," which reserved the right defend against appraisal, was "immaterial" and did not "mislead or harm stockholders."
     The court added that the proxy statement was accurate and correctly stated that appraisal rights were not available to stockholders.