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

Supreme Court of Delaware

April 16, 2019

VERITION PARTNERS MASTER FUND LTD. and Verition Multi-Strategy Master Fund Ltd., Petitioners Below, Appellants,
v.
ARUBA NETWORKS, INC., Respondent Below, Appellee.

         Submitted: March 27, 2019

Page 129

          Court Below: Court of Chancery of the State of Delaware, C.A. No. 11448-VCL

         Upon appeal from the Court of Chancery. REVERSED and REMANDED.

         Michael J. Barry, Esquire, Christine M. Mackintosh, Esquire (Argued ), Michael T. Manuel, Esquire, Rebecca A. Musarra, Esquire, GRANT & EISENHOFER P.A., Wilmington, Delaware, for Appellants, Verition Partners Master Fund Ltd. and Verition Multi-Strategy Master Fund Ltd.

         Michael P. Kelly, Esquire (Argued ), Steven P. Wood, Esquire, Daniel J. Brown, Esquire, MCCARTER & ENGLISH, LLP, Wilmington, Delaware; Marc J. Sonnenfeld, Esquire, Karen Pieslak Pohlmann, Esquire, Laura Hughes McNally, Esquire, MORGAN, LEWIS & BOCKIUS LLP, Philadelphia, Pennsylvania, for Appellee, Aruba Networks, Inc.

         Ned Weinberger, Esquire, Derrick Farrell, Esquire, Thomas Curry, Esquire, LABATON SUCHAROW LLP, Wilmington, Delaware, for Amici Curiae Professors Audra Boone, Brian Broughman, Albert Choi, Jesse Fried, Mira Ganor, Antonio Macias, and Noah Stoffman in Support of Appellant and Reversal.

         Gregory P. Williams, Esquire, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware, for Professors William J. Carney and Keith Sharfman as Amici Curiae in Support of Appellee and Affirmance.

         Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and TRAYNOR, Justices; constituting the Court en Banc.

          OPINION

          PER CURIAM:

         In this statutory appraisal case, the Court of Chancery found that the fair value of Aruba Networks, Inc., as defined by 8 Del. C. § 262, was $ 17.13 per share, which was the thirty-day average market price at which its shares traded before the media reported news of the transaction that gave rise to the appellants’ appraisal rights.[1] In its post-trial opinion, the Court of Chancery engaged in a wide-ranging discussion of its view on the evolution of our State’s appraisal law and how certain recent decisions have affected the relevance of market-based evidence to determining fair value.[2] For purposes of this

Page 130

appeal, we need not respond in full to the dicta and instead focus on the key issue before us: whether the Court of Chancery abused its discretion, based on this record, in arriving at Aruba’s thirty-day average unaffected market price as the fair value of the appellants’ shares. Because the Court of Chancery’s decision to use Aruba’s stock price instead of the deal price minus synergies was rooted in an erroneous factual finding that lacked record support, we answer that in the positive and reverse the Court of Chancery’s judgment. On remand, the Court of Chancery shall enter a final judgment for the petitioners awarding them $ 19.10 per share, which reflects the deal price minus the portion of synergies left with the seller as estimated by the respondent in this case, Aruba.

          I.

         In August 2014, Hewlett-Packard Company ("HP"), a publicly traded company, approached Aruba, another publicly traded company, about a potential combination. Aruba hired professionals and, in addition to negotiating with HP, began to shop the deal. Five other logical strategic bidders were approached, but none of them showed any interest.[3] The petitioners did not argue below that private equity bidders could compete given the synergies a combination with HP or another strategic buyer could garner.[4]

         After several months of negotiations between the two companies, the Aruba board decided to accept HP’s offer of $ 24.67 per share. News of the deal leaked to the press about two weeks later, causing Aruba’s stock price to jump from $ 18.37 to $ 22.24. The next day, after the market closed, Aruba released its quarterly results, which beat analyst expectations. Aruba’s stock price rose by 9.7% the following day on the strength of its earnings to close at $ 24.81 per share, just above the deal price.[5]

         Not long after the deal leaked, both companies’ boards approved the transaction, and Aruba and HP formally announced the merger at a price of $ 24.67 per share. The final merger agreement allowed for another passive market check.[6] ...


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