City of N. Miami Beach Gen. Employees' Ret. Plan v. DR Pepper Snapple Grp., Inc.

• Citation: 189 A.3d 188
• Decision Date: 01 June 2018
• Docket Number: C.A. No. 2018–0227–AGB
• Parties: CITY OF NORTH MIAMI BEACH GENERAL EMPLOYEES' RETIREMENT PLAN and Maitland Police Officers and Firefighters Retirement Trust, on behalf of themselves and all other similarly situated stockholders of Dr Pepper Snapple Group, Inc., Plaintiffs, v. DR PEPPER SNAPPLE GROUP, INC., Maple Parent Holdings Corp., Salt Merger Sub, Inc., Larry Young, David E. Alexander, Antonio Carrillo, José M. Gutiérrez, Pamela H. Patsley, Ronald G. Rogers, Wayne R. Sanders, Dunia A. Shive, and M. Anne Szostak, Defendants.
• Court: Court of Chancery of Delaware

189 A.3d 188

CITY OF NORTH MIAMI BEACH GENERAL EMPLOYEES' RETIREMENT PLAN and Maitland Police Officers and Firefighters Retirement Trust, on behalf of themselves and all other similarly situated stockholders of Dr Pepper Snapple Group, Inc., Plaintiffs,

v.DR PEPPER SNAPPLE GROUP, INC., Maple Parent Holdings Corp., Salt Merger Sub, Inc., Larry Young, David E. Alexander, Antonio Carrillo, José M. Gutiérrez, Pamela H. Patsley, Ronald G. Rogers, Wayne R. Sanders, Dunia A. Shive, and M. Anne Szostak, Defendants.

C.A. No. 2018–0227–AGB

Court of Chancery of Delaware.

Date Submitted: May 25, 2018

Date Decided: June 1, 2018

Michael J. Barry, Jeff A. Almeida, and Laina M. Herbert of GRANT & EISENHOFER P.A., Wilmington, Delaware; Mark Lebovitch and John Vielandi of BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP, New York, New York; Counsel for Plaintiffs.

S. Mark Hurd, Melissa A. DiVincenzo, Eric S. Klinger–Wilensky, and Alexandra Cumings of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Brian A. Herman of MORGAN, LEWIS & BOCKIUS LLP, New York, New York; Jason H. Wilson of MORGAN, LEWIS & BOCKIUS LLP, Philadelphia, Pennsylvania; Counsel for Defendants Dr Pepper Snapple Group, Inc., Salt Merger Sub, Inc., Larry Young, David E. Alexander, Antonio Carrillo, José M. Gutiérrez, Pamela H. Patsley, Ronald G. Rogers, Wayne R. Sanders, Dunia A. Shive, and M. Anne Szostak.

Paul J. Lockwood, Joseph O. Larkin, Sarah R. Martin, Alyssa S. O'Connell, and Michelle L. Davis of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Counsel for Defendant Maple Parent Holdings Corp.

BOUCHARD, C.

Earlier this year, Dr Pepper Snapple Group, Inc. and Keurig Green Mountain, Inc. announced an agreement to combine their businesses to create a more diversified beverage company. The transaction is structured so that Keurig will become an indirect wholly-owned subsidiary of Dr Pepper through a reverse triangular merger. Dr Pepper stockholders will receive $103.75 per share in a special cash dividend and will retain their shares of Dr Pepper, which will account for 13% of the shares of the combined company. The indirect owners of Keurig will receive shares of Dr Pepper and will hold the remaining 87% of the equity of the combined company.

Dr Pepper stockholders are not being asked to approve the merger, which combines a merger subsidiary of Dr Pepper with the parent of Keurig. But they are being asked to approve two proposals necessary to effectuate the transaction at a stockholders meeting scheduled for June 29, 2018.

On March 8, 2018, Dr Pepper issued a preliminary proxy statement for the stockholders meeting. It states that Dr Pepper stockholders will not have appraisal rights under Section 262 of the Delaware General Corporation Law in connection with the proposed transaction. That filing prompted two stockholder plaintiffs to file this action in which they assert that Dr Pepper stockholders "ought" to be afforded appraisal rights in connection with the proposed transaction.

The parties agree that "this action concerns a purely legal question"¹ concerning the availability of appraisal rights under Section 262. They have filed cross-motions for summary judgment, requesting a decision before the upcoming stockholders meeting.

Section 262 affords stockholders of Delaware corporations a statutory remedy for appraisal of their shares in certain defined circumstances. Relevant here, Section 262(b) expressly provides that appraisal rights shall be available only for the shares of stock of a "constituent corporation" in a merger or consolidation to be effected pursuant to certain provisions of the General Corporation Law. The three-step process for determining a stockholder's entitlement to appraisal under Section 262(b) also contemplates that the stockholder will relinquish its shares in the merger or consolidation.

For the reasons explained below, the court holds that the term "constituent corporation" as used in Section 262 means an entity actually being merged or combined and not the parent of such an entity. Based on that construction, the court concludes that Dr Pepper's stockholders do not have a statutory right to appraisal under Section 262(b) because Dr Pepper is not a constituent corporation. Instead, Dr Pepper is simply the parent of one of the two corporations that will be merged in connection with the proposed transaction.

As a second ground for its decision, the court concludes that Dr Pepper stockholders are not entitled to appraisal because they are retaining their shares in connection with the proposed transaction. This type of transaction does not fit the statutory scheme of Section 262(b), which contemplates that the shares for which appraisal is sought will be relinquished in a merger or consolidation.

Based on these conclusions, defendants' motions for summary judgment will be granted, and plaintiffs' motion for summary judgment will be denied.

I. BACKGROUND

The facts recited herein are based on the uncontroverted allegations of the Verified Class Action Complaint (the "Complaint")² and certain documents filed with the Securities and Exchange Commission that were cited in the parties' submissions in connection with their cross-motions for summary judgment.³

A. The Parties and Relevant Non–Parties

Defendant Dr Pepper Snapple Group, Inc. ("Dr Pepper") is a publicly traded corporation that produces and sells more than fifty brands of flavored beverages throughout North America and the Caribbean.⁴ Defendant Salt Merger Sub, Inc. ("Merger Sub") is a wholly-owned subsidiary of Dr Pepper that was formed solely for the purpose of facilitating the transactions described herein.⁵ The nine individual defendants comprise Dr Pepper's board of directors: Larry Young, David E. Alexander, Antonio Carrillo, José M. Gutiérrez, Pamela H. Patsley, Ronald G. Rogers, Wayne R. Sanders, Dunia A. Shive, and M. Anne Szostak.⁶

Defendant Maple Parent Holdings Corp. ("Maple Parent") is a private entity that indirectly owns non-party Keurig Green Mountain, Inc., a leader in specialty coffee and single-serve brewing systems.⁷ Non-party JAB Holdings Company S.à r.l. ("JAB") controls Maple Parent.⁸

Plaintiffs City of North Miami Beach General Employees' Retirement Plan and Maitland Police Officers and Firefighters Retirement Trust purportedly hold an undisclosed number of shares of Dr Pepper common stock.⁹

B. The Proposed Transactions

On January 29, 2018, Dr Pepper, Maple Parent, and Merger Sub entered an Agreement and Plan of Merger (the "Merger Agreement").¹⁰ Under the Merger Agreement, Merger Sub will merge "with and into Maple Parent," with Maple Parent surviving the transaction as a wholly-owned subsidiary of Dr Pepper (the "Merger").¹¹ Each share of Merger Sub common stock will be converted into one share of the surviving corporation (i.e. , Maple Parent), and each share of Maple Parent common stock will be converted into the right to receive shares of newly-issued Dr Pepper common stock determined pursuant to an exchange ratio set forth in the Merger Agreement.¹² Before the closing of the Merger, Maple Parent will declare a $9 billion cash dividend to Dr Pepper.¹³

If completed, the equity holders of Maple Parent immediately before the effective time of the Merger (the "Effective Time") will own approximately 87% of Dr Pepper's common stock immediately after the Effective Time.¹⁴ The public stockholders of Dr Pepper immediately before the Effective Time will retain their shares and own approximately 13% of Dr Pepper after the Merger.¹⁵ After the Merger, JAB will be Dr Pepper's controlling stockholder.¹⁶

The Merger is depicted in the diagram below:¹⁷

Dr Pepper plans to declare a special cash dividend to its stockholders of record as of the business day immediately preceding the closing of the Merger, entitling them to $103.75 per share, payable one business day after the Effective Time (the "Special Dividend").¹⁸ Dr Pepper expects to fund the Special Dividend with funds secured from third-party financing sources and the $9 billion dividend it will receive from Maple Parent.¹⁹ The post-Merger entity and Special Dividend are depicted in the diagram below:

C. The Charter Amendment and Share Issuance Proposals

Dr Pepper's stockholders are not being asked to vote to approve the Merger. Rather, as described in a preliminary proxy statement filed with the SEC on March 8, 2018 (the "Preliminary Proxy"), Dr Pepper's stockholders will vote on two proposals necessary to effectuate the transactions contemplated by the Merger Agreement at a stockholders meeting to be held on June 29, 2018.²⁰ First, Dr Pepper's stockholders will "vote on a proposal to approve the issuance of [Dr Pepper] common stock as merger consideration pursuant to the [Merger Agreement]" (the "Share Issuance Proposal").²¹ Second, Dr Pepper's stockholders will "vote on a proposal to approve an amendment to the certificate of incorporation of [Dr Pepper] to provide for [ ] an increase in authorized shares to permit issuance of a sufficient number of shares as merger consideration" (the "Charter Amendment Proposal").²² The Merger only can be consummated, and stockholders only will receive the Special Dividend if Dr Pepper's stockholders approve both the Share Issuance and Charter Amendment Proposals.²³

The Preliminary Proxy informs Dr Pepper's stockholders that they do not have appraisal rights in connection with the Merger. Specifically, it states that " Section 262 of the DGCL does not provide for appraisal rights in connection with the transactions contemplated by the merger agreement for holders of shares of [Dr Pepper] common stock."²⁴

II. PROCEDURAL HISTORY

Plaintiffs filed the Complaint on March 28, 2018, asserting two claims. Count I asserts that the individual defendants breached their fiduciary duties by failing to inform Dr Pepper's stockholders that they have appraisal rights in connection with the Merger.²⁵ Count II asserts that 8 Del. C. § 262(d)(1) was violated because the Preliminary Proxy...