On April 17, 2019, the Delaware Supreme Court reversed a significant appraisal decision from the Delaware Court of Chancery in Verition Partners Master Fund, Ltd. v. Aruba Networks, Inc., No. 368, 2018 (Del. Apr. 17, 2019). In Aruba, the Supreme Court reversed the trial court’s fair value award of $17.13 a share, directing the Court of Chancery to enter judgment at the deal price (minus synergies value) of $19.10 per share.
In so doing, the High Court found that the Court of Chancery improperly concluded that the fair value of Aruba’s stock was equal to the unaffected market price of Aruba’s shares, which was thirty percent lower than the deal price. The Supreme Court ruled that the Vice Chancellor’s “decision to use the trading price as his sole basis for determining fair value was his alone, and in no way dictated by a rational reading of Dell”. (Slip op. at 20).
That said, the Supreme Court agreed with the Court’s conclusion that, on this record, “‘the deal price . . . operates as a ceiling for value.’” Slip op. at 25. After excluding synergy values “or other value the buyer expects from changes it plans to make to the company’s ‘going concern’ business plan” (Slip op. at 9), the Supreme Court accepted Aruba’s calculation of its fair value at $19.10 per share, which was below the $24.67/share deal price, but higher than the trial court’s $17.13 market price valuation.
Key Takeaway: The Aruba decision reinforces the recent string of Delaware decisions, such as Dell and DFC Global, in which the Delaware Supreme Court has found that the deal price should represent strong evidence of fair value (assuming an arm’s length transaction and robust sales process), subject to reduction for synergies. Appraisal practitioners should continue to take notice.
Carl D. Neff is a partner with the law firm of Fox Rothschild LLP. Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at firstname.lastname@example.org.