Applebaum v. Avaya, Inc.
Delaware Supreme Court
812 A.2d 880 (2002)
- Written by Eric Miller, JD
Facts
Avaya, Inc. (defendant), a spin-off of AT&T, had so much outstanding common stock that more than three million stockholders held fewer than 90 shares each. Avaya sought to reduce its administrative burden (e.g., regular mailing of reports) by decreasing its stockholder base. To that end, Avaya’s board of directors sought the stockholders’ approval of a reverse split—either 1 for 30, 1 for 40, or 1 for 50—followed by a forward split in the opposite ratio. This would have the effect of reducing some stockholders’ ownership to less than one whole share, thus triggering a statute that would enable Avaya to cash out stockholders with only a fractional interest by paying an amount based on the average trading price over a 10-day period. The stockholders who retained at least one whole share, plus fractional interests, would then be returned to their previous ownership in the forward split. Milton Applebaum (plaintiff) held 27 shares of Avaya stock, meaning that he would be cashed out in each possible scenario. Applebaum brought suit in the Delaware Chancery Court to enjoin the proposed transaction, arguing that it violated statutory standards of fairness. The court found in favor of Avaya. Applebaum appealed. The Delaware Supreme Court granted certiorari.
Rule of Law
Issue
Holding and Reasoning (Veasey, C.J.)
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