Hariton v. Arco Electronics
Citation and Court
Hariton v. Arco Electronics, Inc., 41 Del. Ch. 74 (Del. Ch. 1963), aff’d, 182 A.2d 22 (Del. 1962)
Facts
Arco Electronics was acquired by Loral Electronics through a sale of all of Arco’s assets in exchange for Loral stock, followed by Arco’s dissolution. The transaction was economically equivalent to a merger. Hariton, an Arco shareholder, argued that the transaction was a de facto merger that should have triggered shareholder appraisal rights—rights that would not have been available in a straightforward asset sale.
Issue
Whether a sale of all corporate assets for stock, followed by dissolution, constitutes a de facto merger requiring compliance with merger statutes and triggering appraisal rights for dissenting shareholders.
Holding
The Delaware courts rejected the de facto merger doctrine, holding that the statutory provisions governing asset sales and mergers are independent and that a transaction qualifying as an asset sale under one statute need not also comply with the merger statute, even if the economic result is indistinguishable from a merger.
Rule / Doctrine
Under Delaware law, the form of a transaction controls its legal consequences. The de facto merger doctrine is not recognized in Delaware: a corporation may accomplish what is economically a merger through a sale of assets without triggering the protections (including appraisal rights) available to shareholders in a statutory merger.
Significance
The foundational Delaware case rejecting the de facto merger doctrine and establishing the principle that form controls over economic substance in corporate transactions. Critical for understanding how Delaware’s enabling approach allows parties to structure transactions to avoid appraisal rights, and for understanding the policy debate over whether form or substance should govern in corporate law.