Farris v. Glen Alden Corp.

Supreme Court of Pennsylvania · Corporations

CorporationsMergersDissenters' rightsDe facto mergerde facto mergerdissenters' rightsappraisalasset acquisition

Facts

Glen Alden and List entered a reorganization agreement under which Glen Alden would acquire all of List's assets except a small amount of cash, issue 3,621,703 shares to List for distribution to List shareholders, assume all of List's liabilities, change its name to List Alden, install directors from both companies, dissolve List, and continue both businesses in the surviving entity. A majority of Glen Alden shareholders approved the agreement after receiving notice and a proxy statement that did not state the meeting would effect a merger or consolidation and stated that no appraisal or dissenters' rights existed. The plaintiff shareholder sued to block consummation, alleging the notice was defective because the transaction was in substance a merger that triggered statutory dissent and appraisal rights. Defendants answered that the transaction was merely a purchase of assets, for which no such rights existed.

Issue

Whether the reorganization agreement, though structured as an acquisition of assets for stock, was in substance a merger within the meaning of the Pennsylvania Business Corporation Law so that Glen Alden shareholders were entitled to notice of dissent and appraisal rights. If so, the court also had to decide whether the 1957 amendments eliminating dissent rights for certain asset purchases barred those rights here.

Rule

To determine the nature of a corporate transaction, a court looks not merely to the form of the agreement but to all its provisions, its consequences, and the purposes of the corporation-law provisions at issue. When a transaction combines corporations so that one loses its essential nature and the original fundamental relationships of its shareholders to each other and to the corporation are substantially altered, the transaction is a merger within section 908A, even if cast as an asset purchase; the 1957 amendments denying dissent rights for asset acquisitions apply only to a purchase of assets without more.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

North River Milling, a Pennsylvania corporation based in Pittsburgh, agrees to acquire all operating assets of Harbor Vista Holdings, a Delaware company in Baltimore, in exchange for newly issued North River shares. North River will assume Harbor Vista's debts, Harbor Vista will dissolve, five of Harbor Vista's seven directors will join the combined board, and Harbor Vista's shareholders will own 78% of the surviving company after closing.

A North River shareholder objects and demands that the meeting notice include dissent and appraisal rights. Under the majority's approach, which is the strongest argument?

Explanation. The majority looks beyond form to the agreement's provisions, consequences, and the purpose of the dissent-rights statute. Where one corporation dissolves, liabilities are assumed, management and control shift, and the transferor's shareholders obtain majority ownership of the survivor, the deal functions as a merger and dissent rights apply even though the documents call it an asset acquisition. (Derived from Farris v. Glen Alden Corp. (n.d.).)