Verition Partners Master Fund Ltd. v. Aruba Networks, Inc.
210 A.3d 128
Del.2019Background
- Aruba Networks negotiated and agreed to a $24.67/share strategic acquisition by HP after a limited canvass of other strategic buyers; deal announced after a market leak and shortly before Aruba reported stronger-than-expected quarterly earnings.
- Verition (appellants) sought appraisal under 8 Del. C. § 262, initially valuing Aruba at $32.57/share; Aruba (respondent) advanced deal-price-less-synergies valuations (~$19.10/share) and DCF-based valuations.
- After this Court’s DFC and Dell decisions, the Vice Chancellor sua sponte solicited supplemental briefing about Aruba’s market attributes; Aruba then argued the 30‑day preannouncement unaffected market price ($17.13) was the best measure of fair value.
- The Court of Chancery awarded $17.13/share, giving exclusive weight to the 30‑day unaffected market price, partly because it thought deal-price-less-synergies required an additional deduction for ‘‘reduced agency costs.’'
- On appeal, the Delaware Supreme Court held the Court of Chancery abused its discretion: the trial court had no record support to double‑count alleged agency‑cost reductions and improperly elevated the unaffected market price introduced late by the judge.
- The Supreme Court reversed and remanded with instructions to enter judgment at $19.10/share (deal price minus HP’s estimated synergies retained by seller), plus interest.
Issues
| Issue | Plaintiff's Argument (Verition) | Defendant's Argument (Aruba) | Held |
|---|---|---|---|
| Proper measure of § 262 fair value (going‑concern, exclude merger‑specific value) | Fair value higher (DCF ~ $32.57); deal process and DCF support higher value | Deal‑price minus synergies (~$19.10) or market price informative; after supplemental briefing argued for $17.13 unaffected market price | Court must value going‑concern and exclude merger‑specific synergies; deal‑price‑less‑synergies is appropriate here; trial court abused discretion by using $17.13 market price exclusively |
| Whether deal‑price‑less‑synergies must be further reduced for ‘‘reduced agency costs’’ | Not applicable / argued against additional unspecified deductions | Trial court posited additional deduction for agency‑cost reductions from consolidation | No record support to infer extra agency‑cost value beyond synergies; double deduction was erroneous |
| Weight to give unaffected 30‑day preannouncement market price | Market price not dispositive; DCF and deal‑price evidence should govern | Market price is highly informative under market efficiency and post‑Dell/DFC precedent; $17.13 requested | Market price can be informative but here was introduced late, lacked adversarial testing, and ignored HP’s access to nonpublic, more current information; exclusive reliance was improper |
| Admissibility/adequacy of record to support judge‑originated valuation theory | Needed full discovery, expert testing on market efficiency and agency effects | Trial court exercised discretion after supplemental briefing | Because market‑price theory was raised sua sponte and not properly developed, appellate court reversed and adopted Aruba’s deal‑price‑minus‑synergies figure ($19.10) |
Key Cases Cited
- Cavalier Oil Corp. v. Hartnett, 564 A.2d 1137 (Del. 1989) (appraisal values company as going concern; exclude merger‑specific value)
- Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 177 A.3d 1 (Del. 2017) (market efficiency and deal‑price considerations inform appraisal weight)
- DFC Global Corp. v. Muirfield Value Partners, L.P., 172 A.3d 346 (Del. 2017) (market price may be highly informative when market is efficient)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (market value is a pertinent factor in valuation)
- M.P.M. Enters., Inc. v. Gilbert, 731 A.2d 790 (Del. 1999) (arm’s‑length merger price is a strong indicator of fair value)