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

Court of Chancery of Delaware

February 15, 2018

VERITION PARTNERS MASTER FUND LTD. and VERITION MULTI-STRATEGY MASTER FUND LTD., Petitioners,
v.
ARUBA NETWORKS, INC., Respondent. DFC Dell Aruba

          Submitted Date: January 26, 2018

          Stuart M. Grant, Michael J. Barry, Christine M. Mackintosh, Michael T. Manuel, Rebecca A. Musarra, GRANT & EISENHOFFER P.A., Wilmington, Delaware; Attorneys for Petitioners.

          Michael P. Kelly, Steven P. Wood, McCARTER & ENGLISH, LLP, Wilmington, Delaware; Marc J. Sonnenfeld, Karen Pieslak Pohlmann, Laura Hughes McNally, MORGAN, LEWIS & BOCKIUS LLP, Philadelphia, Pennsylvania; Attorneys for Respondent.

          MEMORANDUM OPINION

          LASTER, V.C.

          In May 2015, Hewlett-Packard Company ("HP") acquired Aruba Networks, Inc. ("Aruba" or the "Company"). The transaction was governed by an Agreement and Plan of Merger by and among Aruba, HP, and Aspen Acquisition Sub., Inc., a wholly owned subsidiary of HP. Under the merger agreement, each share of Aruba common stock was converted into the right to receive consideration of $24.67 per share, subject to the holder's statutory right to eschew the merger consideration and seek appraisal.[1] The petitioners perfected their appraisal rights and litigated this statutory appraisal proceeding. This is the court's post-trial decision on the issue of fair value.

         The Delaware Supreme Court's decisions in Dell[2] and DFC[3] endorse using the market price of a widely traded firm as evidence of fair value.[4] As in Dell and DFC, the market for Aruba's shares exhibited attributes associated with the premises underlying the efficient capital markets hypothesis. Under Dell and DFC, these attributes provide sufficient evidence of market efficiency to make Aruba's stock price "a possible proxy for fair value."[5] Aruba's thirty-day average unaffected market price was $17.13 per share.

         The Delaware Supreme Court's decisions in Dell and DFC endorse using the deal price in a third-party, arm's-length transaction as evidence of fair value.[6] When evaluating the reliability of the deal price, a trial judge must remember that

the purpose of an appraisal is not to make sure that the petitioners get the highest conceivable value that might have been procured had every domino fallen out of the company's way; rather, it is to make sure that they receive fair compensation for their shares in the sense that it reflects what they deserve to receive based on what would fairly be given to them in an arm's-length transaction.[7]

         Put differently, "[t]he issue in an appraisal is not whether a negotiator has extracted the highest possible bid. Rather, the key inquiry is whether the dissenters got fair value and were not exploited."[8]

         In this case, the merger was an arm's-length transaction that provided stockholders with consideration of $24.67 per share. By definition, it provided stockholders with "fair compensation" in the sense of "what would fairly be given to them in an arm's-length transaction."[9] The petitioners proved that the Company's negotiators might have done better, but there is no reason to believe that they left any of Aruba's fundamental value on the bargaining table. When the merger consideration of $24.67 per share is compared to the unaffected market price of $17.13 per share, it is not possible to say that Aruba's stockholders were exploited. The deal price therefore provides reliable evidence of fair value.

         The Dell and DFC decisions recognize that a deal price may include synergies, and they endorse deriving an indication of fair value by deducting synergies from the deal price.[10] The respondent's expert cited a study that provides data on the base rates at which targets successfully extract a share of anticipated synergies from acquirers. Using that data, this decision arrives at a midpoint valuation indication for Aruba of $18.20 per share. I personally believe that Aruba's negotiators did not extract as great a share of the synergies as they might have, which suggests that deal-price-less-synergies figure is slightly higher.

         The Dell and DFC decisions caution against relying on discounted cash flow analyses prepared by adversarial experts when reliable market indicators are available.[11]The decisions teach that discounted cash flow models should be "used in appraisal proceedings when the respondent company was not public or was not sold in an open market check."[12] When market evidence is available, "the Court of Chancery should be chary about imposing the hazards that always come when a law-trained judge is forced to make a point estimate of fair value based on widely divergent partisan expert testimony."[13]In this case, the discounted cash flow analysis prepared by the petitioners' expert generated a value of $32.57, which was inconsistent with the market evidence. The discounted cash flow analysis prepared by the respondent's expert generated a value of $19.75, nestled nicely between the unaffected market price and the deal price. Its methodological underpinnings, however, provided cause for concern, as did the meandering route by which the expert arrived at his final figure. I do not rely on the discounted cash flow valuations.

         The two most probative indications of fair value are Aruba's unaffected market price of $17.13 per share and my deal-price-less-synergies figure of approximately $18.20 per share. In the context of this case, the unaffected market price provides the most persuasive evidence of fair value. My deal-price-less-synergies figure suffers from two major shortcomings.

         First, my deal-price-less-synergies figure is likely tainted by human error.[14]Estimating synergies requires exercises of human judgment analogous to those involved in crafting a discounted cash flow valuation. The Delaware Supreme Court's preference for market indications over discounted cash flow valuations counsels in favor of preferring market indications over the similarly judgment-laden exercise of backing out synergies.[15]

         Second, my deal-price-less-synergies figure continues to incorporate an element of value derived from the merger itself: the value that the acquirer creates by reducing agency costs.[16] A buyer's willingness to pay a premium over the market price of a widely held firm reflects not only the value of anticipated synergies but also the value created by reducing agency costs.[17] The petitioners are not entitled to share in either element of value, because both "aris[e] from the accomplishment or expectation of the merger."[18] The synergy deduction compensates for the one element of value arising from the merger, but a further downward adjustment would be necessary to address the other.[19]

         Fortunately for a trial judge, once Delaware law has embraced a traditional formulation of the efficient capital markets hypothesis, the unaffected market price provides a direct route to the same endpoint, at least for a company that is widely traded and lacks a controlling stockholder.[20] Adjusting down from the deal price reaches, indirectly, the result that the market price already provides. Aruba's unaffected market price provides the most persuasive evidence of fair value.

         By awarding fair value based on the unaffected market price, this decision is not interpreting Dell and DFC to hold that market price is now the standard for fair value. Rather, Aruba's unaffected market price provides the best evidence of its going concern value.[21] The fair value of Aruba is $17.13 per share.

         I. FACTUAL BACKGROUND

         The parties reached agreement on 180 stipulations of fact in the Pre-Trial Order. Trial took place over three days. The parties submitted 996 exhibits, including eleven deposition transcripts. Three fact witnesses and three experts testified live. The parties proved the following facts by a preponderance of the evidence.

         A. Aruba

         Aruba was a Delaware corporation headquartered in Sunnyvale, California. Aruba went public in 2007. Until its acquisition by HP, Aruba's common stock traded on the NASDAQ under the symbol "ARUN."[22]

         Aruba principally sold components for enterprise wireless local area networks ("WLANs").[23] From 2008 until 2014, its market share increased from 8.6% to 12.8%. Shortly before the merger, Aruba's market share peaked at 14%.[24] Although Aruba was a significant player in the industry, Cisco Systems, Inc. dominated it.[25] For those same years, Cisco's market share hovered around 50%.[26]

         During the years leading up to the merger, Dominic Orr served as Aruba's CEO.[27]Before joining Aruba, Orr already had enjoyed a successful career in the technology and telecommunications sectors.[28] In 2002, in his early fifties, Orr retired to pursue a range of personal interests.[29]

         In 2006, the Aruba board of directors (the "Board") lured Orr out of retirement. On-anticipated serving for three years. But when his first term ended in 2009, the Board had not identified a successor. Orr agreed to stay on for a second three-year term, but when that term ended, the Board still had not identified a successor. At that point, Orr agreed to stay on "year by year, " on the condition that Aruba seriously engage in succession planning.[30]The Board agreed but did not move rapidly. The Board did not engage an executive search firm until 2014. Even then, the Board limited the engagement to developing a position specification for a "CEO succession review."[31] Active recruitment would require a separate engagement.[32] There remained "[n]o firm date" for Orr's retirement.[33]

         By the time he led the merger negotiations with HP in late 2014 and early 2015, Orr was ready to return to an active retirement.[34] As a responsible and conscientious individual, he was not about to leave Aruba in the lurch, and he cared deeply about the Company and its employees.[35] But he also had other things that he wanted to do with his life. The sale of Aruba to HP gave Orr a path to an honorable personal and professional exit.

         B. Wall Street Analysts Question Aruba's Financial Performance.

         One of the precipitating events for the merger talks between HP and Aruba was a negative stock market reaction to Aruba's results for the third quarter of 2014.[36] In May 2014, Aruba announced its quarterly results. Revenue exceeded both Aruba's own guidance and the Wall Street consensus estimates.[37] But the Company reported a gross margin of 70.5%, below the consensus estimate of 72% and Aruba's "longstanding target of71-73%."[38]

         The resulting analyst coverage was harsh. Wall Street firms headlined their reports with titles like "Weak Gross Margins Outweigh Sales Upside; Maintain Market Perform" and "FY3Q14: Disappointing Gross Margin Offsets Ongoing 802.1 lac Ramp."[39] Aruba's stock price dropped 12.11% on the news, from $20.06 to $17.63.[40]

         Internally, Aruba management was disappointed.[41] They had not anticipated the furor over gross margins.[42] Orr vented to the Board: "[W]e, as an executive team, are finally sick of wall st discrediting our tremendous come back in revenue growth because they said we are not as profitable as Ubiquiti (give me a break!)."[43]

         To improve margins, Aruba management developed a cost optimization plan called "Project Greyhound."[44] It contemplated eliminating approximately 130 employees and relocating another eighty to "lower-cost geographies."[45] Management undertook the project because the "Company value [was] not adequately reflected in [the] stock price."[46]

         In August 2014, Aruba announced its results for the full year of 2014, including quarterly results for the fourth quarter. Aruba achieved record revenue. Orr told investors that Aruba had achieved "significant market share gains" and had a "strong platform for future growth."[47] Aruba simultaneously announced the implementation of Project Greyhound.[48]

         The analysts' reactions were mixed. Some were positive.[49] Others were more cautious.[50] Traders bid up Aruba's stock price by 8%, from $20.24 to $22.01.[51]

         C. HP Approaches Aruba.

         HP had been monitoring Aruba as an acquisition candidate. HP felt it had strong offerings in the wired networking space and wanted to combine those products with Aruba's wireless offerings. HP believed the combined product set could compete effectively with Cisco and take significant market share.[52]

         On August 27, 2014, the day after Aruba announced its full-year earnings, HP approached Aruba about a deal. Antonio Neri, a Senior Vice President at HP, contacted Orr.[53] Orr promptly notified Daniel Warmenhoven, Aruba's lead independent director.[54]Warmenhoven, in turn, contacted Frank Quattrone, a senior investment banker at Qatalyst Partners LP.[55]

         The next day, Warmenhoven notified the full Aruba Board of HP's interest. He also reported that he had contacted Quattrone and that Orr would contact Stuart Francis, an investment banker who had recently left Barclays Capital Inc. to join Evercore Group L.L.C.[56] Warmenhoven told the other directors that HP wanted to proceed "quickly and present the proposal to the [HP] board on Sept[ember] 16."[57]

         Qatalyst jumped at the potential engagement. Immediately after hearing from Warmenhoven, Quattrone reached out to Orr and sent him a proposed engagement letter.[58]Two days later, George Boutros, another senior banker with Qatalyst, sent Orr a "[s]cript for [d]iscussion with H[P]."[59] Meanwhile, Warmenhoven reconsidered reaching out to Francis. Warmhoven "had no experience with Evercore" and "didn't know the team."[60]

         On August 29, 2014, Neri again spoke with Orr. Neri insisted that HP was serious. Orr tried to "delicately set expectations that this is going to be a high premium deal."[61]

         On September 1, 2014, Neri and Orr met in person. A talking point that Boutros prepared for the meeting stressed the importance of price: "[T]here will have to be a very substantial premium to market, well in excess of the typical m&a premium, in order to fully reflect both the substantial upside potential we have as an independent company, and our strategic value to you and others."[62]

         On September 2, 2014, Warmenhoven spoke with HP's CEO, Meg Whitman. She confirmed HP's interest.[63] Later that day, the Aruba Board met. Orr described the developments with HP and reported that HP had not yet proposed "any financial terms or other parameters regarding a possible strategic transaction."[64]

         During the meeting, members of the Board expressed concern about having Qatalyst advise the Company in discussions with HP. Qatalyst had represented Autonomy Corporation PLC when HP bought it for $11 billion in 20ll.[65] The deal was widely understood to have been a "disaster"[66] for HP that resulted in an $8.8 billion write-down and protracted litigation.[67] HP's acquisition of Aruba would be its first significant deal since Autonomy. The directors wondered if HP would balk at working across from Qatalyst.[68]

         When Warmenhoven raised these concerns with Quattrone and Boutros, they reassured him that (i) Qatalyst had worked off of Autonomy's audited financials and was as much a victim as anyone else, (ii) HP understood this, (iii) the entire HP M&A team had turned over since Autonomy, and (iv) Qatalyst had a good relationship with the new team. The Aruba Board accepted these reassurances.[69]

         With the Autonomy concerns allayed, Qatalyst and Aruba negotiated the terms of Qatalyst's engagement letter. Qatalyst projected that a deal price "around $30" per share was "the most likely outcome" and proposed a fee equal to 1.25% of the transaction value for a deal at $30 per share or higher.[70] Qatalyst proposed a richer fee of 1.5% for a price at $36 or higher. Qatalyst felt that a price below $30 warranted 1% of deal value.[71]

         Aruba's CFO, Mike Galvin, pushed back. He pointed out that "it's universally thought that [Aruba] is undervalued right now" and, therefore, a price at the higher end of the range was a strong possibility.[72] Orr agreed with Galvin's assessment. He stressed that the "board doesn't want [a] deal below $30; I want it above $33."[73] He further advised that he was "not comfy [with] a ramp from 30 to 33, " because "[i]t would not be spicy enough" to incentivize Qatalyst "to focus on the 33-35 target range we want."[74] After heated negotiations, the final engagement letter provided for a flat 1% fee.[75]

         D. The Discussions With HP Move Forward.

         Orr and Neri met again on September 10, 2014. Orr emphasized Aruba's strong results, its willingness to remain independent, and the synergies that a deal would produce.[76] Internal HP analyses confirmed the potential for substantial synergies.[77]

         On September 15, 2014, HP kicked off its due diligence. From that point on, management representatives at various levels met on a series of occasions.[78] The speed and intrusiveness of HP's diligence surprised Orr.[79] In a discussion with Neri on September 18, Orr stressed that for a transaction to occur, HP would "have to pay a very compelling price that reflects both the significant upside potential that we have ahead of us, and the strategic value of Aruba .... This means that this deal will not happen at a conventional M&A premium."[80]

         E. No Other Strategic Buyers Show Interest.

         On September 25, 2014, the Aruba Board authorized Qatalyst to contact other potential buyers to gauge their interest. Qatalyst developed a preliminary list.[81] The Board instructed Qatalyst to focus on "a limited number of third parties with financial wherewithal and a strategic interest in mobile technology" that would enjoy "compelling synergies" so that the buyer could be "competitive with any potential proposal from [HP]."[82] The Board instructed Qatalyst not to contact any private equity firms, believing that "given the Company's volatile revenues and unpredictable cash flows and the potential for synergies between Aruba's business with a strategic acquiror, private equity firms would not be competitive in their potential valuations."[83]

         Qatalyst identified thirteen "Selected Potential Partners."[84] Between September 29 and October 4, 2014, Qatalyst approached five of them.[85] By October 9, each had declined.[86] Boutros explained that "[i]t was very clear that none of them had any interest in an acquisition" and that it had "nothing to do with price."[87] Orr concluded that "[n]ow our only (but strong) weapon is to say we go alone."[88] Boutros was "not at all troubled by that, " observing that it was "what we expected anyway."[89]

         F. The Parties' Initial Valuations

         In early October 2014, Aruba provided HP with a set of internal projections based on figures from Aruba's revised three-year strategic financial plan, which Aruba had prepared in the ordinary course of business in June (the "June Plan").[90] In August, Galvin and his finance team had updated the June Plan to incorporate the effects of Project Greyhound and to make the plan more conservative. They had reduced the anticipated revenue growth rate for 2016 and 2017 and adopted more conservative assumptions for bookings, gross margin, and operating margin.[91] In September, the Aruba team reviewed the numbers with Qatalyst, describing the plan as a "medium" case that was "more moderate" than the June Plan.[92] By early October, the Aruba team and Qatalyst had created a more bullish set of projections that forecasted revenue consistent with the June Plan (the "October Projections").[93] Using the October Projections and a discounted cash flow methodology, Qatalyst derived a valuation range for Aruba of $23.50 to $31.08 per share.[94]

         HP's internal deal team used the October Projections to prepare a discounted cash flow valuation of its own. HP estimated Aruba's value as a standalone company at $18.76 per share.[95] But HP also estimated that a transaction between Aruba and HP would generate $1.4 billion in revenue synergies and another $300 million in cost synergies.[96] With synergies, the team estimated that the pro forma value of Aruba could be as high as $32.05 per share.[97]

         G. HP Begins Recruiting Orr.

         While the HP deal team was internally developing its pricing parameters, the senior members of the team continued their discussions with Orr. Neri and Orr had a "pretty open dialogue, " and Orr "remain[ed] positive about [HP's] approach."[98] Neri understood from Orr that Aruba was "not running a sales process, " and Orr made no effort to "postur[e] about trying to pin [HP] against someone else."[99]

         In early November 2014, HP's Global Head of Corporate Development, Joakim Johansson, met with Orr. In an email to Qatalyst and other Aruba executives, Orr recounted that Johansson let him "know clearly that, post combination, they expect me to run the whole networking business."[100] Orr said that Johansson wanted "to look me in the eye and see that I have no objection. I told him I have no objection."[101]

         HP's solicitation of Orr violated the terms of a confidentiality agreement that HP had entered into with Aruba on October 2, 2014. That agreement contained a non-solicit provision, which stated:

HP hereby agrees that, except to the extent expressly authorized by the board of directors of the Company (or any authorized committee thereof) in advance, neither HP nor any of its Representatives acting on its behalf will directly or indirectly have any formal or informal discussions, or directly or indirectly enter into any agreement, arrangement or understanding (whether or not binding), with any director, officer or other employee of the Company relating to (i) any retention, severance or other compensation, incentives or benefits that may be or become payable to any directors, officers or employees of the Company in connection with the Transaction or following the consummation thereof, or (ii) any directorship, employment, consulting arrangement or other similar association or involvement of any directors, officers or other employees of the Company with HP or any of its businesses or operations following the consummation of a Transaction.[102]

         The Aruba Board had not authorized HP's solicitation of Orr.[103]

         H. The HP Board Balks.

         On November 6, 2014, the HP deal team asked Whitman to approve paying up to $3 billion for Aruba, or $26.66 per share.[104] In its presentation to Whitman, the deal team scaled back the synergies slightly, with revenue synergies of $1.26 billion and cost synergies of $295 million.[105] The pro forma, with-synergies discounted cash flow value of Aruba declined to $31.17 per share.[106] Whitman backed the acquisition; the next step was to obtain authority from HP's board of directors (the "HP Board").[107]

         On November 20, 2014, Aruba announced its earnings for the first quarter of 2015. Management described an "outstanding quarter" that included "[r]ecord revenues" that exceeded "the top end of [their] guidance range."[108] Management also reported that Project Greyhound had improved margins, "with non-GAAP operating margin growing to 21.8%."[109] But Aruba also announced a range of revenue guidance for the second quarter of 2015 that was 1% lower at the midpoint than the pre-announcement analyst consensus.[110] Analysts fixated on the lowered guidance. Although Aruba management explained that they were trying to be prudent, [111] Aruba's stock dropped by 14%, closing at $18.82.[112]

         The HP deal team saw the price drop as an opportunity to buy Aruba at a discount.[113]Internally, HP acknowledged that Aruba's results were "better than we expected, "[114] that they validated the case that the deal team had presented to the HP Board, [115] and that "[t]he softer guidance did not cause us to change our financial model."[116]

         The HP Board, however, remained skittish after the Autonomy fiasco, and it was not ready to authorize a bid. Neri told Orr that the HP Board had questions about the deal and that it would take another two or three weeks to answer them.[117]

         Orr felt the process had dragged on long enough, and he recommended that the Aruba Board terminate discussions.[118] With the Aruba Board's backing, management conveyed that Aruba was moving on.[119] Aruba formally terminated discussions on November 25.[120]

         I. HP Engages Advisors And Continues Analyzing The Deal.

         After Aruba terminated discussions, HP continued working on the deal. In late November 2014, HP engaged McKinsey & Company to validate its business case for the acquisition. McKinsey concluded that HP could expect market share gains and revenue and cost synergies that were in line with HP management's estimates.[121]

         In December 2014, HP engaged Barclays as its financial advisor.[122] At the time, Barclays had an existing relationship with Aruba, having worked with Aruba on a potential convertible debt financing since June 2013.[123] The debt financing had been ready to launch in September 2014, but Aruba declined to move forward. The lead banker at Barclays inferred that Aruba was considering a major M&A transaction.[124] Barclays spent the next three months trying to get a role representing Aruba, until they secured the engagement for HP.[125] Barclays also was one of two banks executing Aruba's ongoing share repurchase program, which had been in place since June 2012.[126] In February 2014, the Aruba Board had authorized management to repurchase up to $500 million of Aruba's common stock in the open market at prices up to $25 per share.[127] When approving the repurchases, the Board made the following determination: "The recent trading price of the Company's stock on the NASDAQ Global Select Market has been depressed and the Board believes that the trading price of the Company's common stock may be undervalued . . ., "[128] Aruba management suspended the repurchases in October 2014 because of the discussions with HP.[129] After terminating discussions with HP in November 2014, Orr recommended resuming the repurchase program and buying shares worth up to $75 million, because "the stock is underperforming."[130] Aruba resumed its repurchases at up to $25 per share, believing its shares to be undervalued below that figure.[131]

         Using consensus analyst estimates for Aruba's standalone performance, Barclays provided HP with a range of discounted cash flow values for Aruba as a standalone company and compared them with pro forma values for Aruba that incorporated synergies.[132]

Discount Rate

Perpetuity Growth Rate


2%

3%

4%

Street

Synergy

Street

Synergy

Street

Synergy

11%

$19.31

$29.49

$20.86

$32.29

$22.85

$35.89

12%

$17.61

$26.45

$18.80

$28.62

$20.30

$31.32

13%

$16.21

$23.98

$17.16

$25.69

$18.32

$27.78

         Barclay's valuation work confirmed the HP deal team's internal estimates.

         J. HP Approaches Aruba Again.

         Meanwhile, Aruba's stock price remained stuck around $18-19 per share, and analysts continued to criticize the Company. Orr felt that the analysts had soured on Aruba and were complaining about everything.[133] Galvin expressed frustration that analysts seemed unwilling to "acknowledge the 6 very strong [quarters] in a row we've had."[134]One analyst suggested to Aruba management that the stock price was low enough to justify an accelerated buyback, observing that if management did not pursue that option, an activist might.[135] A group of investors met with management and privately criticized the Company's performance.[136]

         Against this backdrop, in late December 2014, Whitman and Neri invited Orr to dinner.[137] The meeting took place on January 21, 2015. Whitman told Orr that HP still wanted to acquire Aruba.[138] Orr responded positively and suggested that they try to sign up a deal by early March. He told Whitman that Aruba had "over 2000 customers and partners coming to Atmosphere 2015 in Vegas the week of March 1-5, " and "[i]t would be silly not to announce it there."[139] Whitman "completely agreed, " observing "that, in her experience, mergers need forcing function and let this be the one."[140]

         Whitman also told Orr that HP would not work with Qatalyst under any circumstances. That same night, Orr told Warmenhoven that "Meg [Whitman] spoke with conviction and emotion over dinner that they [Qatalyst] were guilty. Qatalyst will argue the reverse, but it does not matter."[141] Orr concluded that "if we don't insert [a] buffer person, our negotiation will suffer severely."[142] To resolve the problem, Warmenhoven doubled back to the solution he had previously dismissed: using Francis. Warmenhoven reminded Orr that Francis "is in a new firm and not conflicted, and Meg [Whitman] knows and (I think) trusts him."[143] He offered to call Whitman to see if involving Francis would be acceptable.[144]

         On January 23, 2015, Warmenhoven updated the Aruba Board. He reported that Aruba should receive a formal offer letter soon. He explained that "[w]e do have a bit of an issue and that is our choice of advisors. [HP] is very anti [Qatalyst]."[145] He reminded the Board that the Company already had a signed engagement letter with Qatalyst, so Aruba would have to pay Qatalyst regardless, but he suggested hiring Francis to handle the negotiations. Warmenhoven pointed out that "Evercore is new in the tech sector, so they may be willing to do a deal at Va% just to get a deal done that they can brag about publicly."[146]

         Warmenhoven spoke with Whitman that same day. She told him that "Qatalyst, Frank [Quattrone] & George [Boutros] are not welcome in the negotiations. The issue is bigger than Autonomy and goes back to EBay & Yahoo."[147] Whitman described Boutros as "evil."[148] But Whitman said that she would happily negotiate with either Francis or Warmhoven, as long as Qatalyst stayed "in the back room."[149] She also wanted Qatalyst "squeezed a bit" on their fees.[150]

         Aruba retained Evercore that day. Francis reported to his partners that the "[d]eal timing is to try to sign a merger agreement and announce by mid February."[151] His partners were thrilled. One replied: "Truly amazing! This is a franchise transaction! Well done!"[152]Another responded: "This is franchise defining. Well done, and it shows the power of loyalty, which you have always eschewed! [sic]"[153] A third offered: "Just remarkable, Stu[.] What a coup! Would be, as you say, a dynamic advance for Evercore in The Valley."[154]

         K. Qatalyst Tries To Repair Its Relationship With HP.

         Qatalyst was as crushed by the news as Evercore was elated. When Orr told Boutros, he was "so emotional, defensive AND offensive (to Meg [Whitman]) that he hardly let me talk."[155] Quattrone asked Warmenhoven to intervene with Whitman on his behalf, and Warmenhoven asked Whitman to meet personally with Quattrone.[156] Quattrone then sent Whitman an email of his own:

I was very surprised and disappointed to learn from Dan Warmenhoven today that you recently expressed very strong negative feelings about our firm, some of our people (including me) and our current representation of Aruba. I would greatly appreciate the opportunity to speak or meet with you at your earliest convenience to understand from you directly what your concerns are and give me the opportunity to address them. . . . [W]hile our loyalties are always to our client on any assignment, I am confident we can address your concerns, play a constructive role and engage with your team in a professional manner.[157]

         When Whitman did not respond, Warmenhoven followed up the next day, vouched for Qattrone, and expressed confidence that "if you two could 'clear the air' [then] Frank [Quattrone] and [Qatalyst] could be constructive participants in getting this deal done."[158]

         In an email to Aruba management, Warmenhoven explained why the dispute with Whitman was so important to Quattrone:

The issue is not Aruba. It is about the [Qatalyst] brand .... If word spreads that they were tossed from this deal because HP will not engage with them on any M&A transaction, that creates a big issue for them. . . . Frank [Quattrone] wants to save his firm .... The relationship, or lack thereof, between [Qatalyst] and HP / Meg [Whitman] is now their focus.[159]

         Orr wondered "how much time we allow" before saying "sorry, [Qatalyst]. We need to protect our transaction. [W]e cannot worry about your brand!"[160]

         Whitman finally spoke with Quattrone on January 29, 2015.[161] She repeated the concerns she had relayed to Warmenhoven and again emphasized that "we cannot have [Qatalyst] as the primary representation for Aruba interacting with us and with our board."[162] On February 1, Aruba formally retained Evercore for a contingent fee equal to 0.25% of the deal value.[163]

         L. HP's Initial Proposal

         By the time Whitman and Neri had dinner with Orr at the end of January 2015, HP had worked with Barclays to analyze a range of prices from $23 to $26.50 per share. Based on this analysis, HP anticipated making an "opening bid" of $24.00 and received board approval to go up to $25.00.[164] After the dinner and Orr's enthusiastic response, HP revised its strategy. On January 31, Johansson called Orr to notify him that HP was preparing a written offer.[165] Orr remained eager. He suggested accelerating the timeline and "getting a deal announced by [Aruba's] earnings on Feb 26."[166] He offered that to achieve that timeline, Aruba "would respond as early as Monday/Tuesday of this week."[167]

         Later that day, HP sent Aruba a written indication of interest for a cash transaction at $23.25 per share, for an aggregate valuation of $2, 563 billion.[168] The price per share represented a 40.2% premium to Aruba's closing price on the previous day and a 35.1% premium to the stock's thirty-day average price.[169] The price exceeded Barclays' latest stand-alone discounted cash flow valuations of Aruba based on analyst estimates, which ranged from $17.47 to $22.61 per share.[170] The price was seventy-five cents below the opening bid of $24.00 per share that HP had been considering at the beginning of the month. The offer was $3.80 per share below the low end of Barclays' most recent pro forma discounted cash flow valuations that included synergies, which valued Aruba at between $27.05 and $37.61 per share.[171]

         M. Aruba Responds.

         The Aruba Board initially met to consider HP's proposal on January 31, 2015. The directors decided to defer any detailed consideration of the proposal until after management presented revised projections and Evercore and Qatalyst had an opportunity to analyze them.[172]

         On February 2, 2015, the Aruba Board met again. Management presented an updated version of the October Projections, prepared in the ordinary course of business, that reflected the Company's performance to date (the "February Projections").[173] Qatalyst reported that they had spoken with a sixth potential strategic partner who also was not interested in acquiring Aruba.[174]

         While the Aruba Board was meeting, a new analyst report criticized the Company, and the stock price fell.[175] Aruba's General Counsel forwarded the report to Evercore and Qatalyst, telling them that they should inform HP that "today's stock price does not reflect reality."[176] She noted that Aruba was going to beat its guidance for the quarter, but that "no one knows that yet."[177] Francis was similarly concerned that the negative analyst reports had depressed the stock price and created a buying opportunity for HP.[178] But he also worried that HP would disengage if Aruba waited to release its quarterly results first and then negotiated from a place of strength; to get a deal done, it was "now or never."[179]

         On February 4, 2015, the Aruba Board met again and received a presentation from Evercore on valuation.[180] Using the February Projections, Evercore generated the following discounted cash flow valuation range for Aruba on a standalone basis:

Perpetuity Growth Rate

WACC


4.0%

4.3%

4.5%

4.8%

5.0%

10.5%

$23.97

$24.80

$25.71

$26.69

$27.76

11.0%

22.03

22.73

23.49

24.31

25.20

11.5%

20.35

20.95

21.60

22.29

23.03

12.0%

18.88

19.40

19.95

20.54

21.17

12.5%

17.58

18.03

18.51

19.01

19.56

         Based on these figures, the Board authorized a counteroffer at $29 per share.[181]

         Evercore conveyed the counteroffer to Barclays. Evercore emphasized that "now is not an opportune time for a sale, given the stock is at a 52-week low."[182] Evercore also told Barclays that "[t]he low stock price reflects a misperception in the market that [Aruba] will miss its quarter. In fact, [Aruba] will beat consensus and have good guide."[183] Barclays responded that the counteroffer was "not even within the realm of possibility."[184]

         N. HP Counters At Effectively The Same Price.

         After receiving Aruba's counter, HP management caucused with its advisors. They prepared talking points which stated, contrary to HP's synergy-based valuations, that HP did "not have the ability to reach anywhere near" Aruba's counteroffer.[185] The talking points also focused on timing, stressing that "[i]f we don't seize the opportunity now, there are many external pressure points that impact HP's ability to do a transaction with [Aruba] in the foreseeable future."[186]

         On February 7, 2015, Barclays told Evercore that any price increase would be on the scale of "quarters, not dollars."[187] Evercore's reaction "was pretty constructive."[188]Evercore "emphasized that [Aruba would] like to announce deal at or before the [Aruba] earnings announcement" because Aruba was "afraid stock runs like Ubiquiti's did which could make the deal more challenging from the [Aruba] perspective."[189]

         During the call with Barclays, Evercore also explained that Aruba's share repurchases had rendered outdated the share count contained in its public disclosures. Aruba in fact had 119.1 million shares outstanding, which was 4.5 million fewer than reported. Evercore told Barclays that HP should increase its price per share to account for the change.[190]

         On February 9, 2015, Barclays recalculated the deal price based on the new share count. With fewer shares, the same aggregate consideration of $2, 563 billion resulted in a price per share of $23.89.[191] This was still below the opening bid of $24.00 per share that HP had contemplated before Whitman and Neri had dinner with Orr. That opening bid had equated to aggregate deal consideration of approximately $3 billion. With the lower share count, that same $3 billion enterprise value generated a price of $24.67 per share.[192] HP decided to tell Aruba that its best and final bid was $24.67 per share, a figure that yielded the same enterprise value that HP originally intended to offer as its opening bid. Internally, HP described $24.67 as "the new $24.00, " because the price merely adjusted for the change in Aruba's public share count.[193]

         On February 9, 2015, Barclays communicated the counter of $24.67 per share to Evercore. The Aruba Board immediately met and authorized a counter at $25.00.[194] On-conveyed Aruba's ask of $25 per share to Neri.[195] Orr also spoke to Whitman. Neither budged on price.[196] Later that day, HP sent Aruba a "Revised Indicative Non-Binding Proposal" that proposed a cash price of $24.67 per share.[197] HP described the bid as its "best and final offer."[198] The proposal represented a 51.6% premium to Aruba's closing price on the previous day and a 48.9% premium to Aruba's thirty-day average trading price.[199]

         O. Aruba Accepts.

         On February 10, 2015, the Aruba Board met to consider HP's revised proposal. Evercore, Orr, and Warmenhoven reported that the revised price resulted from considerable negotiation. They believed it represented HP's best and final offer. Qatalyst advised that it was unlikely that any other party would offer a higher price.[200] The Board discussed "the recent weakness" in Aruba's share price and considered the alternative of continuing as a standalone company.[201] The Board also considered standing firm on its ask for $25 per share. Ultimately, the Board decided to accept HP's offer of $24.67 per share.[202]

         On February 18, 2015, the Aruba Board considered whether to permit HP to speak with Orr and other members of Aruba's senior management about employment opportunities.[203] No one disclosed to the Board that HP previously had made clear to Orr that they wanted him to run Aruba after the merger, or that Orr had told HP that he was willing to do so. The Board consented to the discussions and waived the non-solicitation provision in the confidentiality agreement with HP.[204]

         With approval from the Aruba Board in hand, HP conducted additional due diligence. Evercore approached this phase as an extended audition for future work from HP. In late February 2015, Francis reported to his partners about "a really interesting negotiating dinner at Meg's house Thursday night" and that "it was fun to be the only banker in the room to help both sides think through some issues."[205] A senior Evercore banker responded "That's HUGE! Meg is going to be very active. . . . Would be a great new relationship."[206] Francis bragged about having effectively acted as HP's advisor:

Agreed... I think we made a pretty good impact from an advisory perspective, and she and I have known each other a long time socially through [P]rinceton events and when our kids were at Menlo school.. .please pardon the "pat on the back" nature of this comment, but after the meeting one of the people on our side said we had done a "masterful" job of taking [M]eg [Whitman] through the issues as if we were her advisor... let's hope that can help us get some traction in the future with her.., [207]

         Rather than acting as a banker for Aruba, Evercore acted as a banker for the deal.

         P. The Deal Leaks.

         On February 25, 2015, one day before Aruba was scheduled to announce its earnings, Bloomberg News ran a story on the merger.[208] Internally at Qatalyst, Boutros speculated that HP had leaked the news so that Aruba's "results and subsequent stock price reaction won't be easy to measure."[209] Aruba's stock price jumped from $18.37 to $22.24 on the news.[210] An analyst issued a report positing that, in light of the synergies from the merger, a deal price of "$28 or a premium of 25% from today's close is reasonable [for Aruba]."[211]

         On February 26, 2015, Aruba released its second quarter results. The Company beat analyst expectations and hit management's guidance.[212] Analysts called the results "impressive"[213] and "[b]etter-[t]han-[e]xpected."[214] One praised Aruba for "[a]nother [s]trong [q]uarter."[215] An analyst at Citi doubted that Aruba would be willing to sell "at prices near the current trading level" and suggested that Aruba would not take "less than $30/share."[216]

         On February 27, 2015, Aruba's stock closed at $24.81 per share, above the merger price.[217] That evening, the Aruba Board met to discuss how to respond. Qatalyst advised the Board that the deal still represented a 28% premium to Aruba's average trading price and a 44% premium to its thirty-day average price.[218] Qatalyst also explained that the 10% price bump that Aruba enjoyed after its earnings release matched the price performance of peer firms after reporting similar results.[219]

         Despite Qatalyst's report on the market reaction to peer companies reporting similar results, the Aruba Board concluded that "the higher trading price was primarily being driven by market speculation of a transaction, and not by changes in the fundamentals of the business."[220] The Board discussed renewing its request for $25 per share but rejected the idea in favor of using the stock price as leverage to insist on a lower termination fee and stronger deal terms.[221] After the meeting, Aruba notified HP that it would not "be asking for a higher price."[222]

         Q. The Final Board Approvals

         On February 28, 2015, the HP Board met to consider the definitive merger agreement. Barclays prepared a discounted cash flow analysis based on Aruba's "management case"-the February Projections. The analysis produced a valuation range of $26.20 to $33.64 per share for Aruba on a standalone basis.[223] With synergies, Barclays valued Aruba at between $27.53 and $39.69 per share.[224] Not surprisingly, Barclays opined that the deal price of $24.67 per share was fair to HP and its stockholders. The HP Board approved the merger agreement.[225]

         On March 1, 2015, the Aruba Board convened to consider the definitive merger agreement. Both Qatalyst and Evercore gave valuation presentations. Qatalyst's discounted cash flow valuation ranged from $23.23 to $26.76 per share.[226] Evercore's discounted cash flow valuation ranged from $21.12 to $29.78 per share.[227] Both firms opined that the deal price of $24.67 per share was fair to Aruba and its stockholders. The Aruba Board approved the merger agreement.[228]

         Getting the Aruba deal signed was a key step in Qatalyst's effort to get back in HP's good graces. Afterwards, Quattrone reported to his partners that Whitman had "asked [Orr] to pass along the message to us that there is now a path towards 'rehabilitation' of our relationship."[229] Quattrone proposed to contact Whitman and "get her assurance that if we don't send the blast email" announcing Qatalyst's role in the deal, then Qatalyst would have "a clean slate going forward" with HP.[230] His partners supported this approach, so Quattrone sent Whitman an email asking for a "clean slate."[231] Quattrone also added "an appeal to your fairness, " noting that "we have already been embarrassed and our business damaged by what has already occurred."[232]

         R. Stockholder Approval

         On March 2, 2015, Aruba and HP formally announced the merger.[233] The final merger agreement (i) prohibited Aruba from soliciting competing offers and required the Aruba Board to continue to support the merger, subject to a fiduciary out and an out for an unsolicited superior proposal; (ii) included a $90 million termination fee; and (iii) provided a drop-dead date of February 28, 2016.[234] Orr and Keerti Melkote, Aruba's co-founder and Chief Technology Officer, entered into voting agreements supporting the merger.[235]

         No competing bidder emerged. On May 1, 2015, Aruba held a meeting of stockholders to consider the merger.[236] Under Delaware law, unless a corporation's constitutive documents impose a higher voting requirement, a merger requires the approval of a majority of the voting power represented by the corporation's outstanding shares.[237]Approximately 80.88% of Aruba's outstanding shares were represented at the meeting either in person or by proxy. Approximately 98% of those shares voted in favor of the merger.[238] As a result, approximately 80% of the outstanding shares voted in favor of the merger, clearing the statutory requirement. The transaction closed on May 18, 2015.[239]

         S. This Litigation

         At the effective time of the merger, petitioners Verition Partners Master Fund Ltd. and Verition Multi-Strategy Master Fund Ltd. (jointly, "Verition") owned in the aggregate 2, 288, 234 shares of Aruba's common stock.[240] Verition filed this appraisal proceeding on August 28, 2015. The parties engaged in discovery for nearly two years. During discovery, Aruba's counsel took several aggressive and credibility-impairing positions.

         On May 5, 2016, Verition noticed Whitman's deposition. Aruba promptly filed for a protective order seeking to limit the deposition to three hours. Aruba asserted that Whitman had "limited involvement in HP's acquisition of Aruba, " that "Aruba and HP are aware of nothing in the vast discovery in this case to suggest there were any communications between Ms. Whitman and any representative of Aruba negotiating pricing terms of the Aruba deal, " and that her view towards Qatalyst was immaterial because it "has no bearing on the fair value of Aruba as a stand-alone company."[241] While perhaps technically correct, these representations created a misleading picture of Whitman's involvement. Verition submitted exhibits in response to the motion that made the assertions look silly, and the evidence at trial subsequently reinforced their misleading character. I denied the motion for protective order and required Whitman to testify from day to day until the deposition was completed.[242]

         The parties next clashed when Verition moved to strike aspects of the report of Kevin Dages, Aruba's valuation expert. In his report, Dages relied on an email exchange between Aruba management and the Company's lawyers at Wilson Sonsini Goodrich & Rosati, P.A. for information about stock-based compensation. During Dages's deposition, it became evident that Aruba had withheld the communication as privileged. Dages then attempted, unpersuasively, to suggest the citation had been a typographical error and that he had actually drawn the information from a different source that Aruba had produced. Complicating matters further, Verition showed that, during the deposition of another witness (Galvin), Aruba's lawyers engaged in substantive discussions about the email with the witness during a break. At the hearing, I expressed significant concern about Aruba's discovery conduct, but I concluded that I could address the matter by weighing the evidence rather than by striking a portion of Dages's report.[243]

         Verition dug deeper. Aruba had served a vast privilege log containing 20, 000 entries and spanning 1, 462 pages. Verition confirmed that at least 529 entries asserted privilege for communications about Aruba's projections and stock-based compensation. Those communications took place during the preparation of Aruba's proxy statement, and Wilson Sonsini lawyers were copied on the communications as part of the team, but the communications were not privileged. Aruba had asserted privilege for those communications simply because a lawyer appeared on the document. After Aruba produced them, Verition renewed its motion to strike. This time, I found that Verition had shown a broader pattern of problematic conduct that had prejudiced Verition. It was too late to remedy the prejudice through other means, and I therefore struck the portions of Dages's report relating to stock-based compensation.[244]

         Trial took place from December 13-15, 2016. Through no fault of the parties, the post-trial proceedings became protracted. The parties initially completed post-trial briefing by March 30, 2017, and post-trial argument was scheduled for May 17. I postponed the hearing once it became clear that the Delaware Supreme Court's forthcoming decision in DFC likely would have a significant effect on the legal landscape. The Delaware Supreme Court issued its decision on August 1. Both sides submitted supplemental briefs addressing the implications of DFC, and post-trial argument took place on September 29.

          While this matter was under submission, on December 14, 2017, the Delaware Supreme Court issued its decision in Dell. I invited the parties to provide supplemental submissions addressing the implications of Dell and the extent to which attributes of the market for Aruba's stock resembled the attributes that the Delaware Supreme Court emphasized in Dell. The parties filed their submissions on January 26, 2018.

         II. LEGAL ANALYSIS

         Delaware's appraisal statute "allows stockholders who perfect their appraisal rights to receive 'fair value' for their shares as of the merger date instead of the merger consideration."[245]

[T]he purpose of an appraisal is not to make sure that the petitioners get the highest conceivable value that might have been procured had every domino fallen out of the company's way; rather, it is to make sure that they receive fair compensation for their shares in the sense that it reflects what they deserve to receive based on what would fairly be given to them in an arm's-length transaction.[246]

         Put differently, "[t]he issue in an appraisal is not whether a negotiator has extracted the highest possible bid. Rather, the key inquiry is whether the dissenters got fair value and were not exploited."[247]

         The trial court's "ultimate goal in an appraisal proceeding is to determine the 'fair or intrinsic value' of each share on the closing date of the merger."[248] To accomplish this task, "the court should first envisage the entire pre-merger company as a 'going concern, ' as a standalone entity, and assess its value as such."[249] "Because the court 'strives to value the corporation itself as distinguished from a specific fraction of its shares as they may exist in the hands of a particular shareholder, ' the court should not apply a minority discount when there is a controlling stockholder."[250] The court should exclude "any synergies or other value expected from the merger giving rise to the appraisal proceeding."[251] "[O]nce the total standalone value is determined, the court awards each petitioning stockholder his pro rata portion of this total. . . plus interest."[252]

         When seeking to prove fair value, parties may introduce "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court."[253] "[T]he statute assigns the Court of Chancery the duty to consider the relevant methods of valuation argued by the parties and then determine which method (and inputs), or combination of methods, yields the most reliable determination of value."[254] "But, whatever route it chooses, the trial court must justify its methodology (or methodologies) according to the facts of the case and relevant, accepted financial principles."[255] "Although the Court of Chancery has broad discretion to make findings of fact, those findings of fact have to be grounded in the record and reliable principles of corporate finance and economics."[256]

         In this case, "the relevant methods of valuation argued by the parties" are (i) Aruba's unaffected market price, (ii) the deal price, and (iii) competing discounted cash flow analyses. The degree of emphasis that the parties have placed on these methodologies has evolved. During discovery and at trial, both sides focused on their experts' discounted cash flow valuations. As the number of opinions that focused on the deal price mounted, the respondent placed greater emphasis on that metric, and the petitioners responded by attacking the process that led to the deal. After DFC, the respondent stressed a combination of the unaffected market price and the deal price. After Dell, the respondent redoubled its emphasis on the combination of the unaffected market price and the deal price.

         A. The Unaffected Market Price

         The Delaware Supreme Court's recent decisions in DFC and Dell teach that if a company's shares trade in a market having attributes consistent with the assumptions underlying a traditional version of the semi-strong form of the efficient capital markets hypothesis, [257] then the unaffected trading price provides evidence of the fair value of a proportionate interest in the company as a going concern. That evidence is more reliable than the single estimate of any one individual, be he a knowledgeable market participant, corporate insider, valuation professional, or trial judge.[258] Under this standard, Aruba's unaffected market price provides persuasive evidence of fair value.

         1. The Efficient Capital Markets Hypothesis

         Both Dell and DFC endorse the efficient capital markets hypothesis and its predictions about the reliability of market prices. In DFC, the Delaware Supreme Court stated that "real world transaction prices can be the most probative evidence of fair value even through appraisal's particular lens."[259] The high court observed that "[m]arket prices are typically viewed superior to other valuation techniques because, unlike, e.g., a single person's discounted cash flow model, the market price should distill the collective judgment of the many based on all the publicly available information about a given company and the value of its shares."[260] The court added that, from the perspective of economics, when the subject company's shares are "widely traded on a public market based upon a rich information base, " then the fair value of a proportionate interest in the company as a going concern would "likely be best reflected by the prices at which [the] shares were trading as of the merger."[261]

         In Dell, the Delaware Supreme Court stated that "the price produced by an efficient market is generally a more reliable assessment of fair value than the view of a single analyst, especially an expert witness who caters her valuation to the litigation imperatives of a well-heeled client."[262] The court explained that, when the market for a company's stock has attributes associated with efficient trading, the stock price

reflects the judgments of many stockholders about the company's future prospects, based on public filings, industry information, and research conducted by equity analysts. In these circumstances, a mass of investors quickly digests all publicly available information about a company, and in trading the company's stock, recalibrates its price to reflect the market's adjusted, consensus valuation of the company.[263]

         The court concluded that, when the market for a company's shares has the requisite attributes, the stock price is "likely a possible proxy for fair value."[264]

         Under Dell and DFC, the critical question is whether the market for the subject company's shares has attributes associated with market efficiency. In Dell, the high court described the relevant attributes as follows: "A market is more likely efficient, or semi- strong efficient, if it has many stockholders; no controlling stockholder; highly active trading; and if information about the company is widely available and easily disseminated to the market."[265]

         In both Dell and DFC, the Delaware Supreme Court found that the market for the subject company's shares had the necessary attributes. The Dell decision described the market for Dell's stock as follows:

Dell's stock traded on the NASDAQ under the ticker symbol DELL. The Company's market capitalization of more than $20 billion ranked it in the top third of the S&P 500. Dell had a deep public float and was actively traded as more than 5% of Dell's shares were traded each week. The stock had a bid-ask spread of approximately 0.08%. It was also widely covered by equity analysts, and its share price quickly reflected the market's view on breaking developments. Based on these metrics, the record suggests the market for Dell stock was semi-strong efficient, meaning that the market's digestion and assessment of all publicly available information concerning Dell was quickly impounded into the Company's stock price. For example, on January 14, 2013, Dell's stock jumped 9.8% within a minute of Bloomberg breaking the news of the Company's take-private talks, and the stock closed up 13% from the day prior-on a day the S&P as a whole fell 0.1%.[266]

         The DFC decision described the market for DFC's stock in similar, albeit more abbreviated, terms:

DFC's shares were traded on the NASDAQ exchange from 2005 until the merger. Throughout its history as a public company, the record suggests that DFC never had a controlling stockholder, it had a deep public float of 39.6 million shares, and, it had an average daily trading volume just short of one million shares. DFC's share price moved sharply in reaction to information about the company's performance, the industry, and the overall economy . .[267]

         The high court later noted that "DFC's stock was listed on a major U.S. exchange, traded actively, and had moved sharply over the years when the company was poised for growth or facing dimming prospects."[268]

         In neither case did an expert render an opinion on market efficiency, as is common in federal securities law actions when a plaintiff seeks to invoke the presumption of reliance associated with the fraud-on-the-market theory.[269] Nor was all of the market evidence part of the trial record. In DFC, the Delaware Supreme Court cited record evidence for some of the information about DFC's stock profile; it drew other information from DFC's public filings with the SEC or from an expert report addressing valuation issues.[270] In Dell, the Delaware Supreme Court similarly drew much of the market-related information from public filings with the SEC or from an expert report addressing valuation issues.[271]

         In this case, as in Dell and DFC, no expert offered an opinion, pro or con, on whether the subject company's shares traded in an efficient market. During trial, the parties did not emphasize the attributes of the market for Aruba's common stock. Nevertheless, information drawn from sources comparable to those the Delaware Supreme Court used in Dell and DFC indicates that the market for Aruba's common stock had basic attributes consistent with what the high court found sufficient in those decisions:

• Aruba's shares traded on the NASDAQ through the date of the merger under the symbol ARUN.[272]
• Aruba did not have a controlling stockholder.
• Aruba made public filings in compliance with the disclosure requirements imposed by federal securities laws.
• Thirty-three securities analysts covered Aruba.[273]
• Aruba's weekly trading volume was 9.5 million shares or 8.7% of total shares outstanding.[274]
• Aruba's bid-ask spread was 0.055%.[275]

         The following table compares the numerical attributes of Aruba's common stock with the comparable attributes for the subject companies in Dell and DFC.

DFC
Dell
Aruba
Market Cap.
$375 million
$20 billion
$2.5 billion
Shares in public float
37.5 million
1.45 billion
104 million
Public float as % of outstanding
95%
85%
96%
Bid-ask spread
0.098%
0.08%
0.055%
# of analysts
10
33
33

         Given these attributes, Aruba's stock price is "likely a possible proxy for fair value."[276]

         In addition, as in Dell, there is evidence that the Company's stock price reacted quickly to the release of news about the Company.[277]

• When Aruba announced Project Greyhound after the market closed on August 26, 2014, the stock price rose by 5% the next day, closing at $21.26 on a day when the S&P 500 was stagnant.
• When Aruba announced its first quarter fiscal year 2015 earnings after the market closed on November 20, 2014, Aruba's stock price dropped by 14% on November 21 on a day when the S&P 500 was up 0.5%.
• When Bloomberg News reported that HP was in talks to buy Aruba on February 25, 2015, Aruba's stock price rose 21%. The news came out at 3:02 p.m. and, within one minute, Aruba's stock price had increased 12.7%. By 3:11 p.m., the price had increased to $22.86, before closing at $22.24 at 4 p.m. The same day, the S&P 500 decreased 0.1%.
• When Aruba announced its second quarter fiscal year 2015 earnings after the market closed on February 26, 2015, the stock price increased the next day by 9.7%. That same day, the S&P 500 decreased by 0.3%.
• When the merger was confirmed and the merger price of $24.67 announced on March 2, 2015, the stock price decreased slightly to close at $24.65.

         Obviously, these are anecdotal observations and not event studies, but they compare favorably with the Dell court's observation that Dell's share price "quickly reflected the market's view on breaking developments, " citing, as an example, that "on January 14, 2013, Dell's stock jumped 9.8% within a minute of Bloomberg breaking the news of the Company's take-private talks, and the stock closed up 13% from the day prior-on a day the S&P 500 as a whole fell 0.1%."[278] Similar evidence in this case reinforces the conclusion that Aruba's stock price leading up to the merger is "likely a possible proxy for fair value."[279]

         2. Evidence Of Market Mispricing

         The petitioners dispute the reliability of Aruba's market price in this case, contending that HP timed its acquisition to take advantage of a trough in the market. They rely on a range of authorities, including the Delaware Supreme Court's decision in Glassman v. Unocal Exploration Corp., which stated that, if an acquisition "was timed to take advantage of a depressed market, or a low point in the company's cyclical earnings, or to precede an anticipated positive development, the appraised value may be adjusted to account for those factors."[280]

         The petitioners argue that the market mispricing in this case began after the Company reported positive quarterly results in May 2014. Revenue exceeded both management guidance and Wall Street consensus estimates, [281] but the Company reported a gross margin of 70.5%, below the consensus estimate of 72% and Aruba's "longstanding target of 71-73%."[282] The miss triggered harsh analyst coverage, [283] and Aruba's stock price dropped 12.11% on the news, declining from $20.06 to $17.63. As evidence of the market overreaction, the petitioners rely on internal assessments by Aruba management.[284]

         To address the gross margin issue, Aruba management developed Project Greyhound.[285] Management undertook the project because the "Company value [was] not adequately reflected in [the] stock price."[286] Aruba announced record results in August 2014 and simultaneously announced the implementation of Project Greyhound.[287] Analysts had mixed reactions.[288] Aruba's stock price rose by roughly 9%, from $20.24 to $22.01.[289] As evidence of continued mispricing, the petitioners rely on Aruba management's internal view that it would take "a couple of quarters" after the implementation of Project Greyhound for Wall Street to credit the results.[290]

         The petitioners contend that matters worsened in November 2014. That month, Aruba reported on an "outstanding quarter" that included "[r]ecord revenues" that exceeded "the top end of [its] guidance range" and improved margins thanks to Project Greyhound.[291] But Aruba also announced a range of revenue guidance for the upcoming quarter that was 1% lower at the midpoint than the pre-announcement analyst consensus.[292]Analysts fixated on the lowered guidance. Aruba's stock dropped by 14%, closing at $18.82.[293] As evidence of the market overreaction, the petitioners rely on the internal assessments of Aruba management, who explained that they lowered guidance simply to be prudent and not because of any change in the business dynamics.[294] They also rely on internal assessments by the HP deal team, who viewed Aruba's strong results as validating their internal business case[295] and saw the price drop as an opportunity to buy Aruba at a discount.[296]

         After Dell and DFC, I do not believe that the petitioners' evidence provides any basis to question the integrity of Aruba's pre-announcement market price as an indicator of fair value. As a threshold matter, it is not clear that Glassman has continuing relevance to a widely held, publicly traded entity. Although the Delaware Supreme Court in Glassman did not limit its comments about the appraisal standard to any particular context, the case involved a short-form merger in which a controlling stockholder eliminated the minority.[297] Aruba was not a controlled company, and the market for its shares exhibited the attributes that the Delaware Supreme Court in Dell and DFC found sufficient to give effect to the implications of the semi-strong form of the efficient capital markets hypothesis.

         In Dell, at the trial level, I found "widespread and compelling evidence of a valuation gap between the market's perception and the Company's operative reality."[298]As I viewed the evidence, "[t]he gap was driven by (i) analysts' focus on short-term, quarter-by-quarter results and (ii) the Company's nearly $14 billion investment in its transformation, which had not yet begun to generate the anticipated results."[299] In making this finding, I relied on record evidence indicating that (i) Michael Dell and other members of management valued the company at levels significantly above the market price in light of its ongoing transformation and a related cost-savings initiative, [300] (ii) the financial advisors to the special committee running the sale process generated valuations implying values for the company that far exceeded its market price, [301] and (iii) Mr. Dell and the special committee's advisors (including two financial advisors and a consulting firm) believed that the valuation gap existed because the company's stockholders were focused on the short-term rather than the long-term.[302]

         On appeal, the Delaware Supreme Court held that, in light of the attributes of the market for Dell's shares and the implications of the semi-strong form of the efficient capital markets hypothesis, my reliance on the views of these knowledgeable insiders constituted an abuse of discretion.[303] I had cited various analyst reports as evidence of the contrast between external views and the insiders' assessments. The high court found that the analyst reports showed "just the opposite: analysts scrutinized Dell's long-range outlook when evaluating the Company and setting price targets, and the market was capable of accounting for Dell's recent mergers and acquisitions and their prospects in its valuation of the Company."[304] More broadly, the Delaware Supreme Court held that my finding "ignored the efficient market hypothesis long endorsed by this court."[305] The high court found that "[t]he apparent efficiency of Dell's pre-signing stock market and the long-term approach of its analysts undermine concerns of a 'valuation gap.'"[306]

         In this case, I regard the petitioners' evidence of market mispricing as considerably weaker than what I abused my discretion by crediting in Dell. The evidence in Dell involved the company's likelihood of successfully completing a corporate transformation after spending $14 billion to acquire eleven businesses over three years. The evidence in this case concerns revenue guidance for an upcoming quarter and the implications of a cost-cutting effort (Project Greyhound). As in Dell, the analyst reports show that market observers were assessing these variables. As in Dell, there is no indication that management did not try to communicate forthrightly with the market. In contrast to Dell, the internal concerns that Orr and other members of management expressed in this case lacked the degree of analytical and valuation-based support that accompanied the critiques by Mr. Dell, his management team, and the special committee's advisors. In this case, the internal concerns seem more like reactive expressions of frustration. To reiterate, the evidence in Dell was insufficient to support my finding regarding the existence of a valuation gap. Indeed, the Delaware Supreme Court regarded it as the equivalent of no evidence at all.[307] The weaker evidence here is insufficient to undermine the reliability of Aruba's unaffected market price.

         The DFC decision points to the same conclusion. There, the Court of Chancery found DFC's performance "appeared to be in a trough, with future performance depending on the outcome of regulatory decision-making that was largely out of the company's control."[308] The trial court relied on record evidence that the acquirer "was aware of DFC's trough performance and uncertain outlook" and that "these attributes were at the core of [the acquirer's] investment thesis to obtain assets with potential upside at a favorable price."[309] On appeal, the Delaware Supreme Court explained that "the market's assessment of the future cash flows necessarily takes regulatory risk into account as it does with all the other reasonable uncertain factors that affect a company's future."[310] The senior tribunal found that "the record reveals that equity analysts, equity buyers, debt analysts, debt providers and others were in fact attuned to the regulatory risks facing DFC."[311] The same reasoning applies here in terms of the ability of equity analysts and other market participants to assess the risk associated with Project Greyhound and Aruba's ability to meet management guidance.

         The Delaware Supreme Court in DFC also questioned whether a trial court should have relied on evidence that the buyer thought it was getting a good deal to support the possibility of underpricing:

One would expect a buyer to think it made a wise decision with an upside, and, to be candid, it is in tension with the statute itself to argue that the subjective view of post-merger value of the acquirer can be used to value the respondent company in an appraisal, as the statute's exclusion of transaction-specific value seems to be directed at the concern a buyer who pays fair value should not have its economic upside for taking that risk expropriated in the appraisal process, a result that if it were the law, would discourage sales transactions valuable to selling stockholders. That a buyer views itself as having struck a good deal is far from reliable evidence that the resulting price from a competitive bidding process is an unreliable indicator of fair value. . . . [O]ne would think that the buyer who paid the highest price in a competitive process had the most confidence there was an upside and must think that post-purchase gains would justify its purchase; otherwise, no sale would ever occur in the world. That [the acquirer] expected to profit does not mean that the collective view of value that results from the deal price is not a reliable indicator of fair value; to hold otherwise, is to adopt a non-binary view of fair value in which only the upside view of what could happen in the future is taken into account.[312]

         This passage cautions against regarding HP's belief that it had seized upon an opportune time to purchase Aruba as sufficient to undercut the reliability of Aruba's market price.

         3. Bundling Aruba's Earnings Release With The Merger Announcement

         So far, the petitioners' evidence of a market trough or other mispricing is conceptually similar to the types of evidence that the Delaware Supreme Court rejected in Dell and DFC But the petitioners advanced another argument that falls into a slightly different category because it involved Aruba and HP making conscious decisions about when to release information. At the end of January 2015, HP offered to acquire Aruba for $23.25 per share. During the first week of February, while Aruba was considering its response, another analyst report criticized the Company, and the stock price fell again, closing around $16.07 the day after the report.[313] Contrary to the market's perception, Aruba management knew internally that Aruba was having an excellent quarter and would beat its guidance.[314] But, rather than correcting the market's perception, Aruba management proposed to time the announcement of the merger to coincide with the announcement of Aruba's February 2015 earnings.[315] Companies often announce significant items as part of an earnings release, particularly if the earnings are bad and the news is good (or vice versa).[316] In this case, Aruba management believed that an increase in the stock price would hurt their chances of getting the deal approved. Providing both pieces of information simultaneously would blur the market's reaction to Aruba's strong quarterly results and help get the deal approved.[317]

         In Dell, the Delaware Supreme Court implied that a petitioner might be able to call into question the integrity of the market price if they proved that management had withheld information from the market or misled investors. As one of its several reasons for holding that I abused my discretion, the high court noted that I "expressly found no evidence that information failed to flow freely or that management purposefully tempered investors' expectations for the Company so that it could eventually take over the Company at a fire-sale price."[318] My prediction of the law before the Delaware Supreme Court's decision in Dell would have been that scienter did not matter for an appraisal case where the sole litigable question is valuation rather than culpability. But this passage indicates that whether management causes an informational distortion is pertinent not only for a breach of fiduciary duty claim or fraud action, but for an appraisal proceeding as well.

         In this case, the petitioners contend that Aruba and HP manipulated the timing of announcing Aruba's strong quarterly results and the merger to interfere with investors' ability to perceive Aruba's standalone value. The petitioners do not contend that management never provided the quarterly results or falsified the quarterly results, only that they bundled them together with the announcement of the merger.

         As framed by the Delaware Supreme Court in Dell and DFC, the semi-strong form of the efficient capital markets hypothesis does not contemplate that directional error will arise from the order in which information is released or from bundling information together. Releasing information simultaneously or in close proximity might make it difficult for an expert to disentangle the price reaction for purposes of an event study, but the market still would have the information and would respond. As the high court stated in Dell, when a market is efficient, "a mass of investors quickly digests all publicly available information about a company and, in trading the company's stock, recalibrates its price to reflect the market's adjusted, consensus valuation of the company."[319] And as the high court observed in DFC, "in an efficient market, you can trust prices, for they impound all available information about the value of each security."[320] Aruba's stock traded briefly above the deal price, indicating the market took into account both the announcement of the deal and Aruba's strong results. Viewed within the framework established by DFC and Dell, the record does not provide a persuasive reason to question the reliability of Aruba's trading price based on the decision by Aruba management to bundle together two pieces of information.[321]

         4. The Conclusion Regarding The Market Price Evidence

         Aruba's thirty-day average unaffected market price was $17.13.[322] Viewed within the framework established by DFC and Dell, Aruba's market price provides reliable evidence of the going concern value of the firm.

         B. The Deal Price

         The Delaware Supreme Court's recent decisions in DFC and Dell hold that when a widely held, publicly traded company has been sold in an arm's-length transaction, the deal price has "heavy, if not overriding, probative value."[323] Applying that standard in this case, the merger price carries heavy weight, although the inclusion of elements of value arising from the merger requires adjustments to generate an indication of fair value.

         1. The Role Of The Deal Price

         On three occasions, the Delaware Supreme Court has declined to establish a presumption regarding the relationship between the deal price and fair value. In Golden Telecom, the high court explained that "Section 262(h) neither dictates nor even contemplates that the Court of Chancery should consider the transactional market price of the underlying company. Rather, in determining 'fair value, ' the statute instructs that the court 'shall take into account all relevant factors.'"[324] The court reasoned that "[r]equiring the Court of Chancery to defer-conclusively or presumptively-to the merger price, even in the face of a pristine, unchallenged transactional process, would contravene the unambiguous language of the statute and the reasoned holdings of our precedent."[325]

         In DFC, the Delaware Supreme Court again rejected a request to establish a presumption that the deal price reflects fair value, seeing "no license in the statue for creating a presumption" and expressing doubt about "our ability to craft, on a general basis, the precise pre-conditions that would be necessary to invoke a presumption of that kind."[326]At the same time, the Delaware Supreme Court cautioned that its

refusal to craft a statutory presumption in favor the deal price when certain conditions pertain does not in any way signal our ignorance to the economic reality that the sale value resulting from a robust market check will often be the most reliable evidence of fair value, and that second-guessing the value arrived upon by the collective views of many sophisticated parties with a real stake in the matter is hazardous.[327]

         The Delaware Supreme Court also cautioned that "we have little quibble with the economic argument that the price of a merger that results from a robust market check, against the back drop of a rich information base and a welcoming environment for potential buyers, is probative of the company's fair value."[328]

         The DFC court reversed a decision by this court to give only one-third weight to the deal price. The high court noted that the trial court had made the following post-trial findings of fact:

i) the transaction resulted from a robust market search that lasted approximately two years in which financial and strategic buyers had an open opportunity to buy without inhibition of deal protections;
ii) the company was purchased by a third party in an arm's length sale; and iii) there was no hint of self-interest that compromised the market check.[329]

         The high court further observed that

[a]lthough there is no presumption in favor of the deal price, under the conditions found by the Court of Chancery, economic principles suggest that the best evidence of fair value was the deal price, as it resulted from an open process, informed by robust public information, and easy access to deeper, non-public information, in which many parties with an incentive to make a profit had a chance to bid.[330]

         The Delaware Supreme Court determined that the Court of Chancery's "decision to give one-third weight to each metric was unexplained and in tension with the Court of Chancery's own findings about the robustness of the market check."[331] The senior tribunal therefore reversed and remanded the case so the trial court could "reassess [its] conclusion as to fair value in light of our decision."[332]

         Most recently, in Dell, the Delaware Supreme Court reiterated that "there is no requirement that the court assign some mathematical weight to the deal price."[333] On the facts presented, however, the high court held that I "erred in not assigning any mathematical weight to the deal price" under circumstances suggesting that "the deal price deserved heavy, if not dispositive weight."[334] Those circumstances included (i) stock market attributes associated with efficient trading[335] and (ii) a sale process that involved "fair play, low barriers to entry, outreach to all logical buyers, and the chance for any topping bidder to have the support of Mr. Dell's own votes."[336]

         The decisions in DFC and Dell identify factors that make the deal price so probative that a trial court abuses its discretion by failing to give it enough weight, but they provide less guidance for determining when a process is sufficiently bad to warrant discounting the deal price. One passage in the DFC decision suggests an answer to the latter inquiry by stating that

the purpose of an appraisal is not to make sure that the petitioners get the highest conceivable value that might have been procured had every domino fallen out of the company's way; rather, it is to make sure that they receive fair compensation for their shares in the sense that it reflects what they deserve to receive based on what would fairly be given to them in an arm's-length transaction.[337]

         This test focuses on whether the deal in question was an arm's-length transaction, and it appears to rule out inquiry into whether a different transaction process might have achieved a superior result. A passage from Dell points in a similar direction, where the high court stated: "The issue in an appraisal is not whether a negotiator has extracted the highest possible bid. Rather, the key inquiry is whether the dissenters got fair value and were not exploited."[338] As with the passage from DFC, the passage from Dell appears to discount whether a different approach might have done better. The Dell test turns on exploitation.

         2. The Deal Price In This Case

         In this case, the HP-Aruba transaction was a third-party, arm's-length merger. HP was not a controller engaged in squeezing out the minority. Nor was the transaction a management buyout where insiders' informational advantages might have raised concerns. The transaction did not involve particular stockholders, such as members of management or a large blockholder, rolling over their shares or otherwise receiving differential treatment. Nothing about the deal structure could be considered exploitive.

         The ultimate decision makers for Aruba-the Board and the stockholders-did not labor under any conflicts of interest. The Board was disinterested and independent. Of its eight members, six were experienced, outside directors. Aruba's stockholder base was widely dispersed. No one identified any stockholders with a dominant position or divergent interests.

         Aruba negotiated with HP over the price. On January 31, 2015, HP sent Aruba a written indication of interest for a cash transaction at $23.25 per share, for an aggregate valuation of $2, 563 billion.[339] Aruba countered at $29 per share.[340] While HP considered Aruba's counter, it learned that Aruba in fact had fewer shares outstanding than HP had believed.[341] HP had based the $23.25 per share price on Aruba's old share count. When HP recalculated its offer to reflect the correct share count, the same aggregate consideration of $2, 563 billion resulted in a price per share of $23.89.[342] Based on that calculation, HP raised its bid to $24.67 per share, or just over 3% on an as-adjusted basis.[343] Aruba asked for $25.00 per share, but HP held firm.[344]

         There is evidence that the price credited Aruba with a portion of the substantial synergies that the transaction would generate from combining Aruba's strength in wireless networking with HP's strength in wired systems.[345] HP's final internal analysis, reflecting independent research and validation by McKinsey, anticipated total synergies of $1.41 billion, consisting of revenue synergies of $1, 175 billion and cost synergies of $235 million.[346]

         HP and Aruba agreed to terms for the merger agreement that the petitioners have not meaningfully challenged. The merger agreement contained a no-shop clause that prevented Aruba from communicating with third parties about an acquisition proposal unless both the Aruba Board's fiduciary duties required it and the acquisition proposal was reasonably likely to lead to a superior proposal.[347] The merger agreement granted HP an unlimited match right, with five days to match the first superior proposal and two days to match any subsequent increase, [348] and during the match period Aruba had to negotiate exclusively and in good faith with HP.[349] The merger agreement provided that if the Aruba Board complied with the no-solicitation provision, including the match right, then the Aruba Board could terminate the merger agreement to accept a superior proposal after first paying HP a termination fee of $90 million, or 3% of equity value.[350] This combination of defensive provisions would not have supported a claim for breach of fiduciary duty.[351]

         Considering these factors as a whole, the HP-Aruba merger looks like a run-of-the-mill, third-party deal. Nothing about it appears exploitive. Particularly given the inclusion of synergies, there is good reason to think that the deal price exceeded fair value and, if anything, should establish a ceiling for fair value.[352]

         a. The Absence Of Competition

         In an effort to undermine the probative value of the deal price, the petitioners argue that HP did not face a meaningful threat of competition. They note that the recent decisions in Dell and DFC cited with approval the open nature of the deal processes in those cases.[353]

         The Dell and DFC decisions did not hold that a deal price would be rendered unreliable in the absence of competition. Instead, the high court indicated that, for an appraisal petitioner to call into question a deal process based on lack of competition, the petitioner should be able to point to a likely bidder and make a persuasive showing that increased competition would have led to a better result.[354] The Dell decision stressed that "[f]air value entails at minimum a price some buyer is willing to pay-not a price at which no class of buyers in the market would pay."[355] "[I]f a company is one that no strategic buyer is interested in buying, it does not suggest a higher value, but a lower one."[356]

         Other aspects of the Dell and DFC decisions similarly discounted the importance of competition. The DFC decision stressed that the purpose of an appraisal "is not to make sure that the petitioners get the highest conceivable value, "[357] and the Dell decision cautioned that "[t]he issue ... is not whether a negotiator has extracted the highest possible bid."[358] Competition might help a seller extract a higher price, but that is not the focus of the inquiry under Dell and DFC.

         The role of competition also must be evaluated in light of the Delaware Supreme Court's endorsement of the efficient capital markets hypothesis. At the trial level, Chancellor Bouchard found in DFC and I found in Dell that the market prices of the acquired firms were depressed and had not been representative of fair value. From that factual starting point, we examined the sale processes for evidence of competition or a meaningful threat of competition that would be sufficient to overcome the market mispricing and generate fair value. On appeal in DFC and Dell, the Delaware Supreme Court relied on the efficient capital markets hypothesis to hold that the factual findings about market troughs constituted abuses of discretion. From that different factual starting point, there is less need for competition among bidders to drive a meaningful sale process, and less need for a court to delve into the details. With a reliable market price as the base line, an arm's-length deal at a premium is non-exploitive. By definition, it provides stockholders with "fair compensation for their shares, " defined as "what they deserve to receive based on what would fairly be given to them in an arm's-length transaction."[359]

         In this case, the petitioners proved that HP knew it did not face a meaningful threat of competition. In October 2014, during its first pass at Aruba, HP's executives established a "pretty open dialogue" with Orr, [360] and he informed HP that Aruba was "not running a sales process."[361] Orr did not make any effort to create the impression of competition by "posturing about trying to pin [HP] against someone else."[362] HP consequently did not feel any pressure to bid. After three full months of discussions and due diligence, HP still had not put a number on the table.

         Aruba has pointed out that, at the end of November 2014, Orr decided that the discussion had dragged on long enough, and he terminated them with the Aruba Board's backing.[363] Under different circumstances, this move might have given Aruba some bargaining leverage by signaling that Aruba was prepared to pursue its standalone plan.[364] But in this case, Orr undercut that implication when he had dinner with Whitman and Neri on January 21, 2015. After Whitman told Orr that HP still wanted to acquire Aruba, [365] On-responded enthusiastically and proposed to announce the deal at an industry conference during the first week of March.[366] Days later, when an HP executive called Orr to say that HP would be sending over its proposal, Orr suggested getting a deal announced by the end of February.[367]

         HP's bidding tactics suggest that HP knew it did not face competition. Before the dinner with Orr, HP planned to open with $24.00 per share and negotiate up to $25.00.[368]After Orr's response, HP lowered its opening bid to $23.25.[369] When Aruba countered at $29, Barclays told Evercore that any price increase would be on the scale of "quarters, not dollars."[370] Based on a new share count that Evercore provided, HP recalculated its opening bid as equating to $23.89 per share.[371] This was still below the planned opening bid of $24.00 per share that HP contemplated before Whitman and Neri had dinner with Orr. With the lower share count, the same enterprise value generated a price of $24.67 per share.[372]HP told Aruba that its best and final bid was $24.67, which HP internally called "the new $24.00" because the price merely adjusted for the change in Aruba's public share count.[373]HP increased its bid to $24.67 and refused to budge. The deal ended up at the number HP had planned to use for its opening bid.[374]

         So far, so good for the petitioners. But although they proved that HP knew it did not face a meaningful threat of competition, they failed to identify any other likely bidder who would have paid more for Aruba. The Dell decision teaches that "[f]air value entails at minimum a price some buyer is willing to pay."[375] Elaborating, the court emphasized that, if no one else is interested in buying, "it does not suggest a higher value, but a lower one."[376]In this case, Aruba (through Qatalyst) contacted six potential strategic partners; none were interested.[377] Nor did anyone come forward after the deal announcement. Under Dell and DFC, the petitioners failed to undermine the deal price by showing a lack of competition. Instead, the lack of competition supports the reliability of the deal price.

         Under Dell and DFC, the test instead is whether the Aruba-HP transaction was exploitive. "[T]he purpose of an appraisal is not to make sure that the petitioners get the highest conceivable value ..., "[378] This decision already has found that Aruba's stock price exhibited attributes associated with the premises of the efficient capital markets hypothesis. The merger consideration of $24.67 per share provided Aruba's stockholders with a significant premium over a reliable market price. As a result, the Aruba-HP transaction provided stockholders with "fair compensation for their shares, " defined as "what they deserve to receive based on what would fairly be given to them in an arm's-length transaction."[379]

         b. The Negotiators' Incentives

         The petitioners next contend that the deal price in this case is unreliable because Aruba's negotiators were compromised. The petitioners argue that Aruba's bankers catered to HP, and that Orr faced divergent interests of his own. Citing DFC and various trial court rulings, they argue that the deal price should be discounted because Aruba lacked representatives who engaged in vigorous, arm's-length bargaining on its behalf.[380]

         As with the element of competition, the petitioners regard the negotiators' incentives as a thread which, if pulled, could unravel the sweater. But like competition, the concept of negotiation cannot be excised from the broader framework that the DFC and Dell decisions established. The Dell opinion cautioned explicitly that "[t]he issue ... is not whether a negotiator has extracted the highest possible bid."[381] If this were a case where the market price was depressed or unreliable, then perhaps a detailed inquiry into issues like competition or negotiation might become important in assessing whether the deal process achieved fair value. In a scenario where the underlying market price is reliable, competition and negotiation become secondary. Under those circumstances, an arm's- length deal at a premium over the market price is non-exploitive. By definition, it gives stockholders "what would fairly be given to them in an arm's-length transaction."[382]

         In this case, the petitioners proved that the Aruba's bankers catered to HP. Once Whitman refused to work opposite Qatalyst, [383] Quartrone and Boutros perceived HP's stance as an existential threat to their technology-centered franchise.[384] They wanted and needed to get back on HP's good side. Their primary goal from that point on was to rehabilitate their relationship with HP.[385]

         Evercore also wanted to get on HP's good side. The firm was a new entrant in the Silicon Valley market and had recently hired Francis as "their first tech sector person."[386]Evercore understood the value of completing a highly visible deal as their first Silicon Valley transaction, [387] and they saw the sale process as an extended audition for HP's business.[388] During meetings between Aruba and HP, Evercore positioned itself as the banker to the deal. After one session, Francis reported to his colleagues that "it was fun to be the only banker in the room and help both sides think through some issues."[389] He even bragged about having done "a 'masterful' job of taking [M]eg [Whitman] through the issues as if we were her advisor."[390] Even accepting that investment bankers are always on the lookout for new clients, Evercore's eagerness in this case went far enough to undermine its role as Aruba's advisor.

         Warmenhoven testified that the bankers' relationships with HP did not negatively affect the negotiations and that having two bankers meant Aruba had "two star players on the same team."[391] Orr testified similarly.[392] Notwithstanding this testimony, I credit that the bankers' interests made them less effective negotiators than they might have been

         The petitioners likewise proved that Orr had divergent interests, although his motivations were subtler and less openly mercenary. The sale to HP helped Orr achieve a combination of personal and professional goals that included hastening his return to a personally fulfilling retirement.[393] That said, he was not about to leave Aruba under circumstances that would hurt the Company or its employees.[394] From his standpoint, selling Aruba to HP was the perfect solution.[395]

         As with the issue of competition, the answer on negotiation is that the petitioners proved what they sought to prove, but that is not enough to call into question the deal price for purposes of appraisal. Once again, "[t]he issue in an appraisal is not whether a negotiator has extracted the highest possible bid. Rather, the key inquiry is whether the dissenters got fair value and were not exploited."[396] "[F]air value is just that, 'fair.' It does not mean the highest possible price that a company might have sold for had Warren Buffett negotiated for it on his best day and the Lenape who sold Manhattan on their worst."[397]

         The evidence does not convince me that the bankers, Orr, the Aruba Board, and the stockholders who approved the transaction all accepted a deal price that left a portion of Aruba's fundamental value on the table. Perhaps different negotiators could have extracted a greater share of the synergies from HP in the form of a higher deal price. Maybe if Orr had been less eager, or if Qatalyst had not been relegated to the back room, then HP would have opened at $24 per share. Perhaps with a brash Qatalyst banker leading the negotiations, unhampered by the Autonomy incident, Aruba might have negotiated more effectively and gotten HP above $25 per share. An outcome along these lines would have resulted in HP sharing a greater portion of the anticipated synergies with Aruba's stockholders. It would not have changed Aruba's standalone value. Hence, it would not have affected Aruba's fair value for purposes of an appraisal.

         3. Deducting Synergies

         Under Dell and DFC, the deal price in this case has substantial probative value. But the evidence shows that the deal generated significant synergies. Under the DFC decision, it is to be assumed that HP shared some of those with Aruba's stockholders.[398] To derive an estimate of fair value, the court must exclude "any synergies or other value expected from the merger giving rise to the appraisal proceeding itself"[399]

         The parties agree that it is not possible to determine with precision what portion of the final deal price reflects synergy value. The respondent's expert conceded that "[t]he percentage of synergies actually paid by HP to Aruba cannot be accurately measured."[400]

         Delaware decisions have recognized the difficulties inherent in quantifying synergies.[401] Despite these difficulties, this court has used a deal-price-less-synergies metric. In Union Illinois, Chief Justice Strine, then a Vice Chancellor, started with the deal consideration of $10.20 per share.[402] He then discounted that figure by 13% to reflect the synergies captured by the seller, basing that figure on the opinion of the respondent's valuation expert, and also citing the fairness opinion of the seller's financial advisor, which "had mid-range synergy assumptions of 15%-20% for the synergy value that would be shared" with the seller.[403]

         In the Highfields case, Vice Chancellor Lamb gave 75% weight to a deal-price-less-synergies metric.[404] The transaction price was $31 per share. The respondent's expert opined that the deal price incorporated shared synergies equal to 25% of the deal price, or $7.75 per share. The court rejected this estimate because it relied, in part, on a discounted cash flow analysis that the expert had declined to rely on when rendering his other valuation opinions. The court found more credible an analysis prepared by the acquirer, which estimated the lower end of shared synergies at $9.54 per share. Vice Chancellor Lamb regarded this estimate as too high, because it undervalued the acquired company in certain respects. After correcting the acquirer's estimate to account for the undervaluation, Vice Chancellor Lamb concluded that the deal price incorporated synergies of $4.12 per share.[405]That figure worked out to a deduction of 13%, the same number used in Union Illinois.

         In this case, the HP deal team anticipated $1.41 billion of synergies. McKinsey projected $1, 555 billion in synergies. Barclays' figure was $1.5 billion.[406] McKinsey was an outside consulting firm hired to vet the HP deal team's calculation, adding some credence to its view. This decision therefore uses McKinsey's figure.[407] Aruba's expert drew on a March 2013 study by the Boston Consulting Group which suggested that, on average, sellers collect 31% of the capitalized value of synergies, with the seller's share varying widely from 6% to 51%.[408] Using these figures, the range of synergy value shared in the deal could run from $93 million at the low end to $793 million at the high end. The deal price implied a value for Aruba of $2, 651 billion.[409] Using the low-end synergy deduction of $93 million implies a standalone value of $2, 558 billion, or $21.08 per share. Using the high-end synergy deduction of $793 million implies a standalone value of $1, 858 billion, or $15.32 per share. The midpoint is a standalone value of $2, 208 billion or $18.20 per share. Recognizing that it would be arbitrary to import the 13% synergy figure used in both Union Illinois andHighfields, that percentage nevertheless implies a standalone value of $2, 306 billion or $19.06 per share.

         Because I am inclined to think that Aruba's representatives bargained less effectively than they might have, I tend to think that they obtained a relatively low share of the synergies from HP. This would indicate that they obtained fewer synergies than the midpoint range and imply a standalone value north of $18.20 per share. Having no way to gauge the marginal impact of their ineffectiveness, this decision uses $18.20 per share as the valuation indication for the deal price less synergies.

         C. The Experts' Analyses

         Both sides submitted opinions from valuation experts. Both experts used the discounted cash flow methodology to value Aruba. Both experts believed that the discounted cash flow methodology provided the best approach for determining the fair value of the Company. The respondent's expert, Kevin Dages, said so explicitly: "It is my opinion that Aruba's standalone fair value is most accurately measured using a [discounted cash flow] analysis based on the Management Projections."[410] The petitioners' expert, Paul Marcus, expressed his view implicitly by relying exclusively on the discounted cash flow approach.[411]

         The discounted cash flow methodology is a valuation technique that the financial community generally accepts and that this court frequently uses in appraisal proceedings.[412] "While the particular assumptions underlying its application may always be challenged in any particular case, the validity of [the discounted cash flow] technique qua valuation methodology is no longer open to question."[413] It is a "standard" method that "gives life to the finance principle that firms should be valued based on the ...


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