Hariton v. Arco Electronics, Inc.

Supreme Court of Delaware · 1962 · Corporations

CorporationsSale of assetsMergerDissolutionDGCL § 271DGCL § 275sale of assetsde facto merger

Facts

Arco Electronics, Inc. and Loral Electronics Corporation negotiated an amalgamation and entered into a reorganization agreement on October 27, 1961. Under the plan, Arco agreed to sell all of its assets to Loral in exchange in part for 283,000 shares of Loral stock, to call a stockholders meeting to approve the plan and Arco's voluntary dissolution, and to distribute the Loral shares to Arco's stockholders in complete liquidation. About 80% of the stockholders voting approved the plan, and it was consummated. Plaintiff, a nonvoting stockholder, challenged the transaction as an illegal use of the sale-of-assets statute because it achieved the same result as a merger.

Issue

Whether a corporation may legally use a sale of assets under § 271, coupled in the same agreement with a mandatory plan to dissolve the seller and distribute the purchaser's stock to the seller's stockholders, even though the combined steps accomplish the same practical result as a merger.

Rule

Under Delaware law, the sale-of-assets statute and the merger statute are independent of each other and of equal dignity. Therefore, if the statutory requirements of § 271 are fully complied with, a sale of assets for stock may be combined with a mandatory dissolution and distribution plan, and the transaction is legal even though it accomplishes the same result as a merger.

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Lakeview Sensors, Inc., a Delaware corporation based in Cleveland, agrees to transfer all of its operating assets to Redwood Systems, Inc., a California corporation based in San Diego, in exchange for Redwood shares. The same written plan requires Lakeview to submit both the asset sale and a voluntary dissolution to its stockholders, then distribute the Redwood shares to Lakeview's stockholders in complete liquidation after approval.

A dissenting Lakeview stockholder sues in Delaware, arguing the transaction is invalid solely because the combined steps accomplish the same practical result as a merger and therefore had to be done under the merger statute. Assuming the requirements of the asset-sale statute and dissolution statute were fully satisfied, how should the court rule?

Explanation. The majority held that a corporation may use the sale-of-assets statute together with a mandatory plan of dissolution and distribution, even though the combined steps accomplish the same result as a merger. The key is full compliance with the chosen statutory provisions. Delaware gives independent legal significance to separate sections of its corporation law; the merger statute does not displace the asset-sale statute simply because the two overlap.