When a dissatisfied stockholder petitions the Court of Chancery for an appraisal of shares extinguished in a merger, the petitioner will have the burden of persuading the court of the fair value of those shares. When the holder owns preferred stock, valuation issues arise that do not pertain to the holders of common stock. That is because, unlike for common stockholders, preferred stockholders’ rights, including to redemption and sometimes to valuation in the event of a merger, are spelled out contractually.
If a merger is consummated prior to the date of a mandated redemption, a question arises of whether a court can take the redemption right into consideration in an appraisal action where, by statute, the court is to value the shares "exclusive of any element of value arising from the accomplishment or expectation of the merger." The Court of Chancery answers this question in the affirmative inShiftan v. Morgan Joseph Holdings Inc. , and in the process provides useful guidance to counsel for issuers and holders of preferred stock.
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