MEMORANDUM OPINION

BERGER, Vice Chancellor.

Plaintiff, a former minority stockholder of Contran Corporation ("Contran"), filed this purported class action attacking a reverse stock split whereby the minority stockholders of Contran were cashed-out at $5,000 per share. Defendants, Contran and its three directors — Harold C. Simmons ("Simmons"), Glenn R. Simmons and Michael A. Snetzer, moved to dismiss on the ground that plaintiff's exclusive remedy is an appraisal pursuant to 8 Del. C. § 262. This is the decision on defendants' motion.

Contran is a diversified company operating primarily through subsidiaries in real estate, agriculture, oil and gas manufacturing and sugar production. Prior to April 27, 1984, approximately 99% of Contran's outstanding common stock was owned by a trust created by Simmons for the benefit of his children and grandchildren. Simmons, as sole trustee, controlled Contran and elected its three member board of directors.

In a Notice to Stockholders and Information Statement ("Information Statement"), dated April 27, 1984, Contran's public stockholders were advised that the company's certificate of incorporation had been amended to effect a reverse stock split. The amendment, adopted by written consent pursuant to 8 Del. C. § 228, provides that (1) each ten shares of common stock shall be changed into one share; (2) no fractional shares shall be issued and stockholders shall be paid $5,000 per pre-split share; and (3) appraisal rights will be available for those cashed-out as a result of the stock split (i.e., all of Contran's public stockholders).

Plaintiff alleges that the price of $5,000 per pre-split share is "so grossly unfair as to constitute fraud" and devotes six pages of the complaint to an analysis of Contran's assets. He alleges that the book value of Contran's common stock as of December 31, 1983 was $4,614 and that the book value did not include the current market value of various securities and other assets owned directly or indirectly by Contran totaling approximately $4,700 per share. In addition to those assets as to which he assigned dollar values, plaintiff also alleges that the fair market value of certain real estate held by Contran or its subsidiaries greatly exceeds its carrying value.

The complaint also attacks the method by which the reverse stock split was accomplished. The defendant directors allegedly set the cash-out price unilaterally and arbitrarily; failed to obtain an independent expert's opinion on fairness; ignored the appreciated value of Contran's assets in determining the cash-out price; failed to obtain appraisals of all of Contran's assets; and withheld material information by failing to disclose data on comparable sales and real estate appraisals obtained by Contran or its subsidiaries. Plaintiff alleges that these acts and omissions constitute a fraud on the public stockholders.

In support of their motion to dismiss, defendants relied primarily on the decision in Weinberger v. U.O.P., Inc., Del. Supr., 457 A.2d 701 (1983) as applied by this Court in recent decisions, including Rabkin v. Philip A. Hunt Chemical Corp., Del. Ch., 480 A.2d 655 (1984). However, after briefing and oral argument Rabkin was reversed in a decision where, for the first time since Weinberger, our Supreme Court considered "the exclusivity of the appraisal remedy in a cash-out merger where questions of procedural unfairness having a reasonable bearing on substantial issues affecting the price being offered are the essential bases of the suit." Rabkin v. Philip A. Hunt Chemical Corp., Del. Supr., 498 A.2d 1099, 1100 (1985). Assuming, without deciding, that the holdings in Weinberger and Rabkin apply with equal force to a cash-out accomplished through a reverse stock split, I conclude that plaintiffs are not relegated to an appraisal remedy and defendants' motion to dismiss must be denied.

In their initial briefs, defendants argued that the complaint centers upon the alleged inadequacy of the cash-out price and that, as a result, appraisal provides a complete and adequate remedy. Plaintiff countered that, even as Weinberger had been applied by this Court, the complaint alleges unfair dealing as well as unfair price and, thus, is not subject to dismissal. Following the Supreme Court decision in Rabkin, the parties submitted supplemental memoranda analyzing the impact of that decision on the pending motion. Not unexpectedly, defendants argued that Rabkin is distinguishable on its facts whereas plaintiff found that it "completely reinforced" his original position.

In Rabkin, plaintiffs attacked the cash-out merger of a wholly-owned subsidiary of Olin Corporation ("Olin") with and into Philip A. Hunt Chemical Corporation ("Hunt") whereby the public stockholders of Hunt were to receive $20 per share. Olin had acquired 63.4% of Hunt's outstanding common stock on March 1, 1983 pursuant to a stock purchase agreement which provided that if Olin were to acquire all or substantially all of the remaining Hunt shares within one year of the closing date, Olin would pay the equivalent of at least the net purchase price per share (approximately $25) (the "one year commitment"). The merger at issue was agreed upon approximately one month after the expiration of the one year commitment at a price of $20 per share.

In addition to numerous more general allegations as to the inadequacy of the price, the Rabkin complaints also alleged that the price was grossly inadequate because Olin manipulated the timing of the merger to avoid the one year commitment. In reversing this Court's dismissal of the Rabkin complaints, the Supreme Court stated:

In Weinberger we observed that the timing, structure, negotiation and disclosure of a cash-out merger all had a bearing on the issue of procedural fairness. The plaintiffs contend inter alia that Olin breached its fiduciary duty of fair dealing by purposely timing the merger, and thereby unfairly manipulating it, to avoid the one year commitment. In support of that contention plaintiffs have averred specific facts indicating that Olin knew it would eventually acquire Hunt, but delayed doing so to avoid paying $25 per share.

While we do not pass on the merits of such questions, Olin's alleged attitude toward the minority . . . coupled with the apparent absence of any meaningful negotiations as to price, all have an air reminiscent of the dealings between Signal and UOP in Weinberger.

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These are issues which an appraisal cannot address, and at this juncture are matters that cannot be resolved by a motion to dismiss. Id. at 1105-1106.

In arguing that Rabkin does not undermine their motion to dismiss, defendants point out that this complaint does not allege any manipulative conduct like that in Rabkin and, instead, repeatedly challenges defendants' method of valuation. Moreover, defendants argue that the allegations plaintiff relies upon do not state a cognizable claim of unfair dealing. Specifically, they say that there is no requirement that they (1) condition the stock split on a majority of the minority vote; (2) negotiate the cash-out price or retain an independent expert to provide a fairness opinion; or (3) secure appraisals of all of Contran's assets.

I find it unnecessary to decide whether, under Rabkin, such allegations would be sufficient to state a claim of unfair dealing standing alone. In this case, the complaint also alleges unfair dealing in the form of nondisclosures. The Information Statement makes reference to appraisals and comparable sales data which form the basis for Contran's stated belief that the fair market value of certain real estate owned by Contran or its subsidiaries "substantially exceeds" its carrying value (which is more than $7 million). The complaint cites to the appropriate portions of the Information Statement and alleges that defendants committed a fraud upon the public stockholders by, among other things, withholding this "material information as to value. . . ." Complaint, ¶ 17(g).

While it may turn out that defendants have no obligation to disclose this information, see, e.g., Flynn v. Bass Brothers Enterprises, Inc., 744 F.2d 978 (3rd Cir. 1984), this allegation is not "clearly without merit, either as a matter of law or fact." Rabkin v. Philip A. Hunt Chemical Corp., 498 A.2d at 1104. The allegedly material omissions in the Information Statement combined with the allegations as to the manner in which the reverse stock split was effectuated adequately state a claim for breach of the fiduciary duty of entire fairness. Accordingly, defendants' motion to dismiss is denied.

IT IS SO ORDERED.