Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., 2018 Del. Ch. LEXIS 52 (Feb. 15, 2018)
The Delaware Court of Chancery recently had an opportunity to put into practice the directives the state’s high court had issued in DFC Global and Dell in terms of calculating fair value in a statutory appraisal proceeding. The high court said that, when an efficient market exists and the transaction is arm's length, the deal price deserves great, if not exclusive, value as this price reflects the “the collective judgment of the many.” In contrast, the high court expressed skepticism about the accuracy of a single analyst’s post-transaction discounted cash flow analysis.
In the recent Aruba case, the Court of Chancery faced an added complication that the high court had not addressed in DFC Global nor Dell: If there are several market indicators, which one most accurately reflects fair market value?
The issue arose when dissenters to the 2015 merger between Hewlett-Packard (HP) and Aruba Networks (Aruba) sued for a statutory appraisal. The transaction was synergy-driven. HP acquired Aruba for $24.67 per share. By HP’s internal estimates, the synergistic value was between $1.4 billion and $1.5 billion. The Court of Chancery also found that Aruba’s expert, drawing on a Boston Consulting Group study, suggested synergistic value in the range of $93 million to $793 million. Accordingly, the Court of Chancery found the deal price minus synergies was $18.20 per share. In contrast, the 30-day average unaffected market price was $17.13 per share.
The parties’ trial experts offered DCF-based valuations, which the Court of Chancery, in the wake of the high court’s DFC Global and Dell decisions, rejected.
Vice Chancellor Laster, who adjudicated the case and who also was the author of the original Dell decision, decided in a long, carefully crafted opinion that the choice of best indicator of fair value came down to stock price versus deal price minus synergies.
Find out about the Court of Chancery’s decision and reasoning here.