Verition Partners Master Fund Ltd. v. Aruba Networks, Inc.

Delaware Supreme Court · Corporations

CorporationsAppraisalFair ValueMerger Price Minus SynergiesSection 262appraisalfair valuegoing concern

Facts

HP approached Aruba about a merger, Aruba negotiated with HP and shopped the deal to five other logical strategic bidders, and none showed interest. Aruba agreed to merge at $24.67 per share, and after the deal leaked and Aruba later announced stronger-than-expected quarterly earnings, its stock traded up to $24.81. In the appraisal proceeding, Verition argued for a much higher value, while Aruba argued primarily for deal price minus synergies and estimated that figure at $19.10 per share. After supplemental briefing requested by the Vice Chancellor, the Court of Chancery instead used Aruba's thirty-day preannouncement unaffected market price of $17.13 per share as fair value.

Issue

Did the Court of Chancery abuse its discretion in determining Aruba's fair value by relying exclusively on the thirty-day average unaffected market price rather than the deal price minus synergies? More specifically, could the court discount the deal price further for unspecified "reduced agency costs" on this record?

Rule

Under 8 Del. C. § 262, the Court of Chancery must determine fair value as of the merger date by valuing the stockholder's proportionate interest in the corporation as a going concern, exclusive of any value arising from the accomplishment or expectation of the merger. That requires excluding synergies or other merger-generated value, but a court may rely on market-tested deal price minus synergies when the record supports it. Unaffected market price can be informative, especially in an efficient market, but neither DFC nor Dell makes trading price the exclusive or mandatory measure of fair value.

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Summit Grid Systems, a publicly traded software company based in Denver, agrees to be acquired by North Mesa Technologies, a widely held strategic buyer based in Phoenix. After outreach to several logical strategic buyers and a post-signing go-shop, no higher bidder emerges, and the record contains a supported estimate of merger synergies included in the transaction price.

In a Delaware appraisal action, which valuation approach is most consistent with the governing rule on these facts?

Explanation. Fair value in appraisal is the stockholder's proportionate interest in the corporation as a going concern as of the merger date, excluding value arising from the accomplishment or expectation of the merger. When the record supports it, a market-tested deal price minus synergies is a reliable way to isolate going-concern value. The majority rejected any rule making unaffected market price exclusive or mandatory.