On Feb. 12, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery issued a ruling preventing an appraisal defendant from “prepaying” a portion of the merger consideration to an appraisal petitioner in order to lessen the interest payment due on the ultimate award. The decision, Huff Fund Investment Partnership v. CKx, Civil Action No. 6844-VCG (Del. Ch. Feb. 12, 2014), protects a key leverage point for stockholders exercising their statutory appraisal rights, including those engaged in so-called appraisal “arbitrage”—the right to receive significant interest on top of an appraisal award.
The litigation arose out of the 2011 acquisition of CKx Inc. by an affiliate of Apollo Global Management LLC for $5.50 per share. Rather than accept the merger consideration, Huff Fund Investment Partnership, a CKx stockholder holding more than 13.7 million shares, sought appraisal of its shares under Section 262 of the Delaware General Corporation Law (DGCL), claiming that the merger consideration price did not reflect the fair value of CKx. Following a trial and judgment by the Chancery Court, which appraised CKx shares at the $5.50 merger price, the petitioner filed a motion for reargument and an interlocutory appeal.
