Hariton v. Arco Electronics, Inc.
40 Del.Ch. 326, 182 A.2d 22 (Del.Ch. 1962)

  • Loral entered a deal with Arco to buy all of Arco’s assets in exchange for Loral stock.
    • After the transaction, Arco was to dissolve and pass out the Loral stock to its shareholders.
    • Arco shareholders unanimously approved the deal.
  • Hariton, an Arco shareholder sued to stop the merger.
    • Hariton argued that the deal was defacto merger between the two companies. Therefore he should get appraisal rights.
      • Under Delaware law, when two companies are involved in a merger, the shareholders get the right to vote to approve the merger, and those that don’t approve get the right to sell their shares to the parent corporation at a fair price (aka appraisal rights).
    • Arco argued that under Delaware law, there is a statutory definition of a merger, and this transaction did not meet that definition (instead it was a simple sale of assets under 8 Del.C. §271), so there was no requirement to give the Arco shareholders appraisal rights.
  • The Trial Court found for Arco.
    • The Trial Court noted that the right of appraisal was created to compensate for the loss of the right under the common law to prevent a merger.
      • Under the old common law, mergers had to be unanimously approved. Under Delaware law, they only had to be approved by a majority of shareholders.
    • The Court found that Hariton was (or should have been) aware of §271 when he bought his stock. §271 expressly allows corporations to sell all of their assets to another corporation in exchange of stock.
    • The Court found that since §271 allowed for Arco’s transaction, and was a different section than the merger Statute under Delaware law, lawmakers could not have meant that deals like this one should be treated as mergers.
      • Otherwise what was the point of §271?