In Re GGP, Inc. Stockholder Litigation arose out of a case where Brookfield Property Partners, L.P. and its affiliates acquired GGP.  The merger agreement provided upon approval of a majority of the GGP stock unaffiliated with Brookfield, GGP would declare a pre-closing dividend amounting to about 98.5% of the deal consideration, and $0.312 per share in cash would be paid at closing, representing the balance of the deal consideration, capped at $200 million.

Plaintiffs, stockholders of GGP, urged the Delaware Court of Chancery to conclude that the transaction’s two step structure—the payment of the pre-closing dividend followed by a post-closing payout—violated positive law. Specifically, plaintiffs argued that 8 Del. C. § 262 required Defendants to offer GGP stockholders appraisal for their shares at a pre-transaction value. By paying the pre-closing dividend separately, plaintiffs asserted defendants removed almost all value underlying the GGP shares available for appraisal.

According to the Court, neither party could identify case law addressing how a pre-closing dividend would (or should) be treated in an appraisal proceeding, but the Court believed the answer lies in the statute itself at Section 262(h).  That section directs the Court to value GGP “shares” as if GGP were a going concern “exclusive of any element of value arising from the accomplishment or expectation of the merger,” and then empowers the court to “take into account all relevant factors.” The Court stated that language is designed to endow Delaware courts with flexibility, enabling the presiding judge to view the transaction as a whole in the course of determining GGP’s fair value at the time of the merger. The Court concluded the pre-closing dividend would, in its view, qualify as a “relevant factor” in the court’s assessment of the fair value of a GGP stockholder’s shares.

As a result, the Court believed a GGP stockholder seeking appraisal could argue, and the Court could determine under Section 262, that the pre-closing dividend plus the closing consideration undervalued the dissenting stockholder’s shares. The fundamental issue raised for resolution in the appraisal proceeding would remain unchanged: did the stockholder receive fair value for its proportionate share of the corporation upon closing? After deciding the relevant substantive issue, the Court went on to reject plaintiff’s contention that appraisal rights were not properly disclosed to GGP stockholders.