Written by Chris Walton, JDHow a sua sponte briefing request, an unaffected market price, and a theory of reduced agency costs produced one of the Delaware Supreme Court’s sharpest appraisal reversals
In a typical Delaware appraisal proceeding, the petitioner argues for a number above the deal price, the respondent argues for a number at or below the deal price, and the Court of Chancery picks a value somewhere in the contested range. Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., 210 A.3d 128 (Del. 2019), was not a typical case. After a full trial and supplemental briefing, the Court of Chancery awarded $17.13 per share — a number lower than Aruba itself had advocated. The Delaware Supreme Court reversed, per curiam and en banc, in an opinion as sharply critical of the trial judge as it was doctrinally significant. The decision completed the consolidation of DFC Global and Dell into a working framework and established deal price minus synergies as the dominant fair value methodology when the sale process is clean.
In March 2015, Hewlett-Packard agreed to acquire Aruba Networks for $24.67 per share, a transaction valued at roughly $2.7 billion. Verition Partners Master Fund Ltd., Verition Multi-Strategy Master Fund Ltd., and other appraisal petitioners properly demanded appraisal under Section 262 of the Delaware General Corporation Law. The matter was tried before Vice Chancellor J. Travis Laster of the Court of Chancery, with post-trial briefing concluding in early 2017.
The proceedings unfolded against an evolving doctrinal background. In August 2017, while Aruba was still pending, the Delaware Supreme Court decided DFC Global Corp. v. Muirfield Value Partners, L.P., 172 A.3d 346 (Del. 2017), emphasizing the reliability of deal price as evidence of fair value where the sale process was robust. Four months later, the Court decided Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 177 A.3d 1 (Del. 2017), reaffirming the same point and reversing Vice Chancellor Laster’s prior Chancery decision in that case. Six days after the Dell reversal, the Vice Chancellor wrote the Aruba parties on his own motion, requesting supplemental briefing on “the market attributes of Aruba’s stock” in part because he “learned how many errors [he] made in the Dell matter.” That letter would become a centerpiece of the Supreme Court’s eventual reversal.
In its supplemental brief, Aruba abandoned the deal-price-minus-synergies argument it had relied on at trial and argued for the first time that Aruba’s preannouncement market price of $17.13 per share was the best indicator of fair value. The Supreme Court would later characterize this as a litigant “receiving a more favorable outcome than they argued for and trying to cement that unexpected victory on appeal.” Vice Chancellor Laster issued his post-trial opinion in February 2018, awarding fair value at $17.13 per share — the 30-day unaffected market price, measured from three to four months before the merger closed. The number was below the deal-price-minus-synergies figure of $19.10 that Aruba had pressed throughout the original briefing, and well below the $32.57 Verition had advocated.
The Delaware Supreme Court reversed in a per curiam opinion dated April 16, 2019. The Court directed entry of judgment at $19.10 per share — the deal price minus synergies that Aruba’s expert had originally calculated. The Court held that Vice Chancellor Laster had abused his discretion in three principal respects.
First, the unaffected market price the trial court selected was measured from three to four months before the merger’s effective date, during which material information about Aruba’s performance had emerged that was not reflected in that earlier price. Section 262 requires fair value to be assessed as of the merger’s effective date, and HP — having conducted due diligence — became aware of Aruba’s strong quarterly earnings before the public market did.
Second, the trial court’s rationale for backing out “reduced agency costs” from the deal-price-minus-synergies figure lacked record support. Vice Chancellor Laster had theorized that consolidation of ownership and control following an acquisition reduces agency costs between managers and dispersed shareholders, and that those reduced agency costs are value arising from the merger that must be excluded under §262(h). The Supreme Court rejected this on both factual and theoretical grounds: there was no record evidence that such agency cost reductions existed in this case, and no basis in the relevant literature to assume that whatever agency cost reductions might exist had not already been captured in the synergies the parties had quantified and deducted.
Third, the trial court’s reliance on unaffected market price was structurally weaker than reliance on the deal price. The Court emphasized that “when a public company with a deep trading market is sold at a substantial premium to the preannouncement price, after a process in which all interested buyers had access to confidential information and a fair and viable opportunity to bid, the deal price is a strong indicator of fair value.” Aruba had engaged a financial advisor to conduct a pre- and post-signing market check, multiple strategic buyers had received access to non-public information, and HP’s offer reflected the keener incentives of a buyer taking the non-diversifiable risk of acquiring the entire entity. That price, the Court held, was more informative of fundamental value than a trading price measured before any of that information had been developed.
The per curiam opinion was uncommonly sharp. The Court quoted Vice Chancellor Laster’s own letter expressing concern about “errors” he had made in Dell and characterized the trial court’s decision to rely on unaffected market price as something that “could be seen … as a results-oriented move to generate an odd result compelled by his personal frustration at being reversed in Dell.” The Court further flagged due process concerns: neither party had argued for unaffected market price as the appropriate measure until the trial court’s sua sponte supplemental briefing request, depriving petitioners of a meaningful opportunity to develop evidence in opposition to that theory. Unsigned, unanimous, and pointed, the opinion is one of the Delaware Supreme Court’s sharper rebukes of a Chancery decision in recent memory.
Three takeaways are durable for valuation experts working on appraisal matters.
Synergy quantification is central. The deal-price-minus-synergies methodology, blessed in Aruba and applied in subsequent Chancery decisions including In re Appraisal of Panera Bread Co., is now the default framework when the sale process is clean. Quantifying synergies — separating cost savings, revenue enhancements, financing benefits, and tax attributes available only to the acquirer — has become a discrete expert task with direct consequences for the appraisal award.
Market price evidence requires contemporaneity. An unaffected trading price measured months before the valuation date — before material non-public information has emerged through due diligence — is structurally weaker evidence than the deal price itself. Where market price is offered as evidence of fair value, it needs to be tested against the timing and the information set.
Theoretical adjustments need record support. Theories about agency cost reductions, control premia, and other elements of value arising from the merger require empirical grounding. Speculative theoretical claims about why a deal price overstates standalone going-concern value will not survive appellate review.
For deal counsel, Aruba completed the consolidation of the DFC Global / Dell framework into a working rule: a clean sale process effectively immunizes the deal price (less synergies) against appraisal challenge. The implications are practical.
First, the pre- and post-signing market check is now part of the appraisal defense, not only the fiduciary duty defense. A robust process generates the deal-price-as-fair-value argument that Aruba endorsed; a constrained or interested process leaves the company without the same protection.
Second, the synergy quantification produced for the fairness opinion, the proxy disclosure, and management’s post-signing integration planning becomes critical appraisal evidence. Counsel should be aware of what their bankers and valuation advisors are documenting, because those numbers will be tested in any subsequent appraisal proceeding.
Third, because the appraisal arbitrage industry of the early 2010s depended on Chancery awards above deal price, the trilogy has substantially reduced the population of cases where appraisal makes economic sense for dissenting stockholders. The downside risk for petitioners now meaningfully includes an award below the deal price. Aruba itself illustrates the asymmetry: the petitioners walked away with judgment at $19.10 per share, below the deal price they could have accepted as merger consideration without filing an appraisal action at all.
Aruba is the third installment in a trilogy that reshaped Delaware appraisal law in eighteen months. DFC Global rejected the Court of Chancery’s blended approach and emphasized deal price reliability. Dell reaffirmed that deal price is persuasive in a semi-strong efficient market. Aruba completed the framework by establishing deal price minus synergies as the default outcome when the sale process is clean, and by rejecting theoretical adjustments — the agency-cost-reduction theory most prominently — that lack record support. The trilogy did not formally adopt a presumption in favor of deal price, but its practical effect has been the same. The appraisal arbitrage industry that grew through the early 2010s has substantially contracted in the years since.
Eton Venture Services prepares valuation analyses for appraisal matters, fairness opinions, and merger-related dispute valuation. Each engagement is structured to satisfy the post-DFC/Dell/Aruba framework: deal price reliability where the sale process is clean, synergy quantification grounded in record evidence, and appraisal fair value measured at the effective date of the merger.
Chris Walton, JD, is the President & CEO of Eton Venture Services, Ltd. Co. Contact him at [email protected].
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