Brian Broughman is Professor of Law at Indiana University. This post relates to an Amicus Brief submitted by Law and Finance Professors, led by Professor Broughman, in the case of Verition Partners v. Aruba Networks, available here. This post is part of the Delaware law series; links to other posts in the series are available here.
In Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., the Delaware Court of Chancery appraised the “fair value” of Aruba’s shares as their average market price during the 30 days prior to the announcement of Aruba’s merger with HP. The Court’s fair-value determination was not only 31% below the merger price, but also below the fair-value estimate of defendant’s own expert. Aruba appears to be the first Delaware decision to “hold that the unaffected market price was the best evidence of fair value and award that figure.” Not surprisingly, the decision attracted considerable attention (including here, here, here, here, and here on this blog). The case is now on appeal before the Delaware Supreme Court.
We filed an amicus brief in connection with the appeal. The brief makes two simple points. First, even if a target’s stock traded in an efficient market, its pre-announcement market price will often be an unreliable measure of fair value at the close of the merger. Second, the available evidence suggests that Delaware stockholders have benefitted from the protection provided by fair-value appraisal, and consequently could be hurt if Aruba’s approach is sustained and appraisal valuations collapse down to unaffected market price.