## Facts

- Stephen Farris, a minority shareholder of Glen Alden Corporation, challenged a board-approved “Reorganization Agreement” between Glen Alden (a Pennsylvania corporation) and List Industries Corporation (a Delaware holding company).
- Glen Alden’s coal-mining revenues had declined substantially, and its coal operations generated significant tax-loss carryovers (about $14 million).
- List, through a wholly owned subsidiary, acquired 38.5% of Glen Alden’s stock, enabling List to place three directors on Glen Alden’s board.
- Under the agreement, Glen Alden would acquire essentially all List assets (including substantial cash held by List subsidiaries) and assume all List liabilities, including a $5 million note used to finance List’s earlier Glen Alden stock purchase.
- As consideration, Glen Alden would issue 3,621,703 new shares to List; List would distribute those shares pro rata to its shareholders.
- Glen Alden would increase authorized shares from 2.5 million to 7.5 million and would do so without granting preemptive rights to existing shareholders.
- The combined entity would change its name to “List Alden Corporation,” and directors of both corporations would become directors of the post-transaction corporation.
- Glen Alden shareholders approved the plan by majority vote, but the meeting notice did not inform shareholders of statutory dissent and appraisal rights.
- Farris filed an equity action to enjoin implementation, alleging the transaction was a merger in substance and therefore triggered dissent and appraisal protections.

## Issues

1. Whether the reorganization, structured as an acquisition of another corporation’s assets in exchange for stock, was a merger in substance subject to merger-based dissent and appraisal rights under the Pennsylvania Business Corporation Law.
2. Whether the failure to notify shareholders of dissent and appraisal rights rendered the shareholder approval invalid.

## Decision

- The Supreme Court of Pennsylvania held that the combination, though executed by contract rather than statutory merger procedure, was a merger within the protective scope of the Business Corporation Law.
- The Court treated the transaction as a de facto merger because it fundamentally altered the corporation and the shareholders’ investment and control interests.
- Because shareholders were not notified of dissent and appraisal rights, the shareholder approval at the 1958 meeting was invalid.
- The Court affirmed the lower court’s ruling that the proceedings were void due to defective notice.

## Legal Principles

- Courts may treat a transaction as a merger for statutory-protection purposes when its practical effect is the functional equivalent of a merger, regardless of the transaction’s formal label or structure (de facto merger doctrine).
- Merger-based dissent and appraisal protections apply when a transaction produces a fundamental change in the corporation’s character and materially alters shareholders’ ownership, control, or investment expectations.
- Statutory protections for dissenting shareholders cannot be avoided by using alternative transactional forms to accomplish what is, in effect, a merger.
- When a transaction triggers merger-based rights, shareholders must receive notice of dissent and appraisal remedies; failure to provide required notice invalidates shareholder approval.

## Conclusion

The court held that Glen Alden’s asset-for-stock reorganization with List functioned as a merger and therefore required merger-based dissent and appraisal protections; the corporation’s failure to provide notice of those rights rendered the shareholder vote ineffective and blocked implementation as approved.


Farris v. Glen Alden Corp., 393 Pa. 427, 143 A.2d 25 (Pa. 1958)