Chancery Court Defends Its Fair Value Determination Using the Unaffected Stock Price

On May 21, 2018, in Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., the Delaware Court of Chancery denied a motion for reargument and defended its conclusion that target Aruba’s fair value was best represented by its pre-announcement unaffected trading price, which was 30% less than the deal price. Petitioners alleged that the Court “misapprehended the law” through its use of a 30-day average of unaffected trading prices, among other things. The Court pointed to recent Delaware Supreme Court cases Dell and DFC Global which provided guidance on various appraisal reference points including deal price less synergies, unaffected market prices, and financial analysis by experts. The Court noted the emphasis placed on deal price in these Supreme Court decisions and concluded that the Chancery Court must give weight to unaffected market prices in semi-strong efficient markets. The Court also noted that the fair value determination need not rely on multiple valuation metrics, and that its sole reliance on Aruba’s unaffected trading price was justified.