Hariton v. Arco Electronics, Inc.

41 Del.Ch. 74, 188 A.2d 123 (1963)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

In the summer of 1961, Arco and Loral Electronics Corp. (D) negotiated for an amalgamation of the companies. As of October 27, 1961, they entered into a 'Reorganization Agreement and Plan.' The provisions of this Plan pertinent here are in substance as follows: 1. Arco agrees to sell all its assets to Loral in consideration (inter alia) of the issuance to it of 283,000 shares of Loral; 2. Arco agrees to call a stockholders meeting for the purpose of approving the Plan and the voluntary dissolution; 3. Arco agrees to distribute to its stockholders all the Loral shares received by it as a part of the complete liquidation of Arco. At the Arco meeting, all the stockholders voting (80%) approved the Plan. It was thereafter consummated. P contended that the sale of assets and dissolution statutes could not be legally combined and that the plan constituted a de facto merger without affording shareholders rights provided in the merger statute. P contends that the several steps taken here accomplish the same result as a merger of D into Loral. In a 'true' sale of assets, the stockholder of the seller retains the right to elect whether the selling company shall continue as a holding company; The stockholder of the selling company is forced to accept an investment in a new enterprise without the right of appraisal granted under the merger statute. § 271 cannot, therefore, be legally combined with a dissolution proceeding under § 275 and a consequent distribution of the purchaser's stock. Such a proceeding is a misuse of the power granted under § 271 and a de facto merger results. P who did not vote at the meeting sued to enjoin the consummation of the Plan on the grounds that (1) that it was illegal; (2) that it was unfair. The second ground was abandoned. Affidavits and documentary evidence were filed, and D moved for summary judgment and dismissal of the complaint. The Vice Chancellor granted the motion and P appealed.