Lawsuit Alleges Dr Pepper Snapple Merger Strips Investors of Appraisal Rights
The lawsuit is the fourth this month to target the planned merger.
March 30, 2018 at 04:27 PM
3 minute read
Indianapolis – Circa September 2016: Dr Pepper Snapple Group Bottling Plant.
The latest challenge to Dr Pepper Snapple Group Inc.'s merger with Keurig Green Mountain Inc. this week accused the Dr Pepper Snapple board of trying to deprive shareholders of their appraisal rights under Delaware law.
A proposed class action, filed Wednesday in the Delaware Court of Chancery, said the Dr Pepper Snapple directors breached their fiduciary duties by giving investors no notice of their appraisal rights, and had manipulated the deal to block dissenting investors from pursuing litigation to determine the fair value of their shares.
“The deal has been structured in a way only a contortionist can appreciate, in order to deny stockholders their rights,” plaintiffs counsel from Grant & Eisenhofer wrote in a 19-page complaint. “If permitted to get away with it here, others will surely follow, further harming the avenues available for stockholders of Delaware companies to protect their interests.”
The lawsuit is the fourth this month to target the planned merger, which asks Dr Pepper Snapple stockholders to sell 87 percent control of the combined entity in exchange for a $103.75 per share cash payment. Three investors have sued separately in Delaware federal court alleging that the board mislead investors in the run-up to the merger agreement.
All four suits ask the courts to postpone an upcoming stockholder vote on the transaction. As of Friday afternoon, Dr Pepper Snapple's stock was trading at $118.38 on the New York Stock Exchange.
According to court documents, the Dr Pepper Snapple board is not seeking approval of the merger agreement, which the companies announced in January. Instead, stockholders are being asked to endorse an amendment to the Dr Pepper Snapple charter that would allow the firm to double its outstanding stock in order to give Keurig a controlling stake in the post-merger company.
“Unless enjoined, through this backwards proposed transaction, Keurig will acquire a majority of DPSG's common stock, and DPSG's common stockholders will be denied their appraisal rights and right to vote on the proposed transaction,” lawyers for the Chancery Court plaintiffs said.
Dr Pepper Snapple, a Delaware company based in Texas, did not immediately respond Friday to a request for comment.
The latest lawsuit also comes as Delaware continues to grapple with its evolving approach toward statutory appraisal action, after a pair of Delaware Supreme Court rulings signaled tighter scrutiny of the cases. In those rulings, known as Dell and DFC, the high court indicated a preference for using deal price as a strong indicator of fair value in an arm's-length transaction.
Attorneys from Grant & Eisenhofer, the same firm tapped to represent the plaintiffs in the Dr Pepper Snapple case, have challenged Dell and its implications for appraisal actions, arguing that the high court's guidance could effectively strip dissident investors of a statutory remedy available under state law.
Attorneys for the companies counter that the rulings were needed to stem the rising tide of appraisal arbitrage, where firms would buy up large amounts of companies' stock on news that a sale was imminent in order to exercise appraisal rights under the Delaware General Corporation Law.
A Grant & Eisenhofer attorney was not immediately available to comment on Friday.
Attorneys for Dr Pepper Snapple were not listed by an online docket-tracking service.
The Chancery Court case is styled City of North Miami Beach General Employees' Retirement Plan v. Dr Pepper Snapple Group.
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