In Verition Partners Master Fund v. Aruba Networks, No. 368, 2018 (Del. Apr. 1, 2019), the Delaware Supreme Court considered whether the Delaware Court of Chancery abused its discretion in concluding that, as of the “effective date” of the merger between Aruba Networks Inc. and Hewlett-Packard Co. (HP), the “fair value” of Aruba—as defined by 8 Del. C. Section 262—was its “unaffected market price,” i.e., the average “trading price of Aruba's stock during the 30 days before news of the merger leaked, which was three to four months prior to closing.” Holding that such a conclusion was an abuse of discretion, the Supreme Court reversed and awarded Verition Partners $19.10 per share, “reflecting the deal price minus the portion of synergies left with Aruba as estimated by … Aruba.”

As explained further below, the Supreme Court reversed the Court of Chancery's reliance on “unaffected market price” as the exclusive measure of Aruba's fair value for multiple reasons, including that the Court of Chancery's rejection of a deal-price-less-synergies valuation, which it otherwise viewed as “compelling evidence of fair value,” found “no basis in the record … or corporate finance literature,” and valuing the company using “unaffected market price” prior to the announcement of the transaction conflicted with Section 262(h) of the DGCL, which requires fair value to be determined as of a qualifying transaction's effective date.

In its post-trial opinion, the Court of Chancery considered three different valuation measures:  “first, the 'unaffected market price' of Aruba's stock before news of the merger leaked; second, the deal price minus the portion of synergies left with the seller; and third, the two expert witnesses' valuations, which were based primarily on discounted cash flow (DCF) models.” After finding that an efficient market for Aruba's stock existed, and that the company's sale process had been reliable, the Court of Chancery rejected the experts' DCF valuations and concluded that both market-based measures provided probative evidence of fair value.