Last year (Feb 18), VC Travis Laster issued an appraisal decision in re Aruba Networks, which found that the deal price of $24.67 was fair in light of the unaffected market price of Aruba stock of $17.13. He explained:
The Delaware Supreme Court’s decisions in Dell and DFC endorse using the market price of a widely traded firm as evidence of fair value. As in Dell and DFC, the market for Aruba’s shares exhibited attributes associated with the premises underlying the efficient capital markets hypothesis. Under Dell and DFC, these attributes provide sufficient evidence of market efficiency to make Aruba’s stock price “a possible proxy for fair value.” Aruba’s thirty-day average unaffected market price was $17.13 per share. ...
... When the merger consideration of $24.67 per share is compared to the unaffected market price of $17.13 per share, it is not possible to say that Aruba’s stockholders were exploited. The deal price therefore provides reliable evidence of fair value.
The Dell and DFC decisions recognize that a deal price may include synergies, and they endorse deriving an indication of fair value by deducting synergies from the deal price. The respondent’s expert cited a study that provides data on the base rates at which targets successfully extract a share of anticipated synergies from acquirers. Using that data, this decision arrives at a midpoint valuation indication for Aruba of $18.20 per share. ...
In this case, the best evidence of Aruba’s fair value as a going concern, exclusive ofany value derived from the merger, is its thirty-day average unaffected market price of $17.13 per share. I recognize that no one argued for this result. I also recognize that the resulting award is lower than Aruba’s proposed figure of $19.75 per share.
Not to mention being more than $7 below the deal price.
The opinion further reminds us that dissenting shareholders are not entitled to have the appraised value include either synergies created by the merger or any reduction in agency costs from the merger. Both of these are elements of value arising "from the accomplishment or expectation of the merger.” I continue to find it rather odd that appraisal would exclude such considerations, since synergies and reduced agency costs are often the chief motivating factors behind an acquisition. But their exclusion stems from the rather absurd notion that the purpose of appraisal is to give the dissenting shareholder what he would have gotten if the merger had never happened as opposed to a fair control premium.
One wonders why anyone continues to opt for appraisal in the case of an acquisition of a publicly traded target, given that the odds of getting less than the merger price are now quite high.
In any event, the Delaware Supreme Court heard oral argument on the case this week. And no justice asked a question. Talk about a cold bench!
