Veriton Partners Master Fund Ltd. v. Aruba Networks, Inc.: Deal Price as a Ceiling in Statutory Appraisal Actions

Alyssa Testo

In Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., the Delaware Supreme Court addressed whether the lower court properly determined the fair value of stockholder shares in an appraisal proceeding. The court held the Delaware Court of Chancery abused its discretion when it used the unaffected thirty-day market price average as fair value over the deal price less synergies. The court correctly held that there is no definitive formula for determining fair value but that the deal price less synergies approach was the best indicator of fair value because the merger was a fully informed, arm’s-length transaction, that resulted from a robust sales process. The practical result of the court’s holding will likely be a decline in appraisal proceedings, more specifically appraisal arbitrage, in fully informed, arm’s-length transactions. This is because the incentives of appraisal arbitrage are removed by the Aruba holding. The deal price likely will now serve as the ceiling for fair value determinations, and the likelihood of the court awarding a fair value over the agreed upon deal price, in fully informed, arm’s-length transactions with a robust sales process, is greatly diminished.

After synthesizing Delaware’s appraisal jurisprudence, this Note calls for the Delaware legislature to amend section 262 of the Delaware General Corporation Law to reduce judicial uncertainty in fair value determinations. Despite the chancery court’s lauded expertise in business law, the judge’s themselves have called for changes to the Delaware appraisal process and readily admit they are uncertain or feel unqualified to make fair value determinations.16 But, because the statute plainly requires the chancery court to make the determination, they are barred by statute from utilizing neutral valuation experts. By amending the statute to mandate a court-appointed valuation expert, judicial uncertainty in fair value determinations could be reduced, if not eliminated.