On May 21, 2018, the Delaware Court of Chancery denied Petitioners’ motion for reargument in the Aruba Networks appraisal litigation, styled as Verition Partners Master Fund Ltd. v. Aruba Networks Inc., C.A. No. 11448-VCL (Del. Ch. May 21, 2018).  In the Court’s post-trial memorandum opinion, dated February 15, 2018, Vice Chancellor Laster issued a ruling, setting the stock’s fair value at Aruba’s thirty-day average unaffected market price, which was $17.13 per share, which was significantly below the merger price of $24.67.

In denying Petitioner’s motion for reargument, the Vice Chancellor defended the reasoning of the post-trial memorandum opinion, with provided a further discussion of DFC Global and Dell.  In the original Aruba Networks opinion, Vice Chancellor Laster determined that an efficient market existed for the target’s shares, given the following factors: (i) the presence of a significant amount of stockholders, (ii) the absence of a controlling stockholder, (iii) fulsome trading volume for the target’s stock, (iv) the broad dissemination of information about the target to the market, and (v) that the Court found that the target’s sale process had been robust.  The Court also noted that the transaction was an arm’s-length merger.

In light of the above, the Court determined that the transaction was “Dell-compliant” and therefore market-based indicators would provide the best evidence of fair value. Of note, Vice Chancellor Laster found that both the deal price and the unaffected stock price constituted probative evidence of fair value.  However, the Court elected to rely upon the unaffected stock price, in light of synergies that the parties expected the transaction to generate.  The Court found that the unaffected stock price reflected “the collective judgment of the many based on all the publicly available information … and the value of its shares.” (Slip op., at 120.)  Vice Chancellor Laster observed that using the deal price and subtracting synergies would involve judgment and introduce a likelihood of error in the calculation.

Key Takeaway:  Consistent with DFC Global and Dell, Aruba Networks reinforces the notion that the Court may look to the deal price in an arm’s-length merger as part of a robust sale process in determining fair value.  But Aruba Networks also lends support for reliance upon the target’s unaffected stock price in determining fair value, to the detriment of the petitioner given the disparity between deal price and stock price.  Appraisal petitioners beware.

Carl D. Neff is a lawyer 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 cneff@foxrothschild.com.

In a long awaited and highly anticipated ruling, the Delaware Supreme Court overturned the Court of Chancery’s decision in the Dell appraisal action, Dell v. Magnetar Global Event Driven Master Fund, No. 565, 2016 (Del. Supr. Dec. 14, 2017).

By way of background, in the 2016 Court of Chancery opinion, In re: Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. May 31, 2016), Vice Chancellor Laster found fair value of the Dell merger to be 22% greater than the deal price, holding that deal price is not a fair value indicator in the context of a management-led buyout.  For a review of the Court of Chancery’s decision, click here.

On appeal, the High Court reversed and remanded the Chancery’s decision in an unanimous en banc decision.  Of significance, the Supreme Court found that where a company is sold in a clean M&A auction process, the Court of Chancery must give the merger price significant weight in its ruling, leaving it to the trial court to decide just how much weight that should be in this case.  Accordingly, the Supreme Court ruled that the Court of Chancery abused its discretion in placing no weight upon the transaction price when valuing the Dell shares at the time of its going-private merger in 2013, and instead relying exclusively on its own discounted cash flow analysis.

This Dell opinion is consistent with the Delaware Supreme Court’s August 2017 decision in DFC Global v. Muirfield Value Partners, No. 518, 2016 (Del. Supr. Aug. 1, 2017), whereby the High Court held that a deal price should represent strong evidence of fair value.  To review a prior post highlighting the DFC Global decision, click here.

Key Takeaway:

The Delaware Supreme Court’s decisions in DFC Global and now Dell make clear that significant weight to the deal price must be afforded when analyzing fair value of a company that is merged or consolidated in a clean, arm’s-length transaction.  Appraisal petitioners therefore will need to demonstrate flaws in the merger process to overcome the “heavy weight” afforded to the deal price.

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 cneff@foxrothschild.com.