In reviewing current “hot topics” in M&A, law firm Sullivan and Cromwell writes this about the current state of appraisal, given the continued developments from multiple major appraisal cases in the past couple years:

“Post-Aruba Appraisal Landscape: Following the Delaware Supreme Court’s decision in Verition Partners Master Fund Ltd. v. Aruba Networks, Inc. (April 17, 2019), in which the Supreme Court reversed the Chancery Court’s finding that unaffected market price was fair value in favor of the deal price less synergies, there have been three appraisal decisions issued: (1) In re Appraisal of Jarden Corporation (July 19, 2019); (2) In re Appraisal of Columbia Pipeline Group, Inc. (August 12, 2019); and (3) In re Stillwater Mining Company (August 23, 2019). While the Delaware judiciary has not expressly established a presumption that the deal price is fair value, it has consistently, like in Columbia and Stillwater, relied on the deal price to determine fair value when the sale process has objective indicia of deal-price fairness (e.g., (1) arm’s-length transactions with third parties, (2) absence of board conflicts, (3) due diligence by the acquiror involving confidential target information, (4) multiple price increases extracted by the target company and (5) lack of alternative bidders (whether evidenced through active or passive market checks)). However, Jarden demonstrates that, in cases where there is a deficient sales process, unaffected market price may still provide a reliable indicator of fair value, and a finding that the deal price is unreliable does not necessarily mean that the fair value will be greater than the deal price. Columbia and Stillwater also highlight that a respondent must prove synergies to reduce fair value below the deal price and that traditional valuation analyses may not receive much weight, particularly if there is a legitimate debate among competing experts concerning the inputs.”

*Lowenstein Sandler LLP acts for petitioners in a matter discussed in this quotation.

Legal news site Law360 ran this analysis [$$$] of Aruba, focusing on whether the decision should be seen as a fight between valuation methodologies, or between two courts trying to fulfill their respective roles. The Chancery Court, left to apply the Delaware Supreme Court’s precedent to complex fact situations and manage cases from their infancy through decision, may be struggling with the Dell and DFC decisions. The Supreme Court, perhaps reconsidering some of the positions it held as law in Dell and DFC, is left to ‘police’ the lower court as that court struggles to apply sometimes conflicting rules and views.

As the diverse reactions to Aruba consider, no doubt scholars will analyze the decision (and decisions still to come) as part of both the evolution of appraisal law, but also in how lower courts and higher courts interact.

Yes – at least according to Professors Korsmo and Myers. In this piece from the HLS Forum on Corporate Governance, the Professors argue that the Aruba decision continued a trend of the Delaware Supreme Court misapplying certain modern finance concepts, starting most glaringly in Dell and DFC, and with Aruba only slowly turning the ship back towards a truer course. The Professors argue that the decision makes four errors: (1) failing to differentiate between how diversified and undiversified investors price risk; (2) misapplying market efficiency concepts in particular the difference between a market for an entire company versus the market for a share of the company; (3) conflating meeting fiduciary obligations with the factors suggesting an environment of pricing efficiency; and (4) viewing valuation as a mechanical exercise, while it must contain some human judgment.

Professors Korsmo and Myers are two of the most respected names in the arena analyzing appraisal rights – we’ve written about their work on a number of occasions.

From Deallawyers.com, observing that the decision can be read as a pretty direct rebuke to the lower Court, and focusing on the Delaware Supreme Court’s finding that the lower court decision appeared “results-oriented.”

From Bloomberg Law, arguing that Aruba harms appraisal arbitrage (despite rejecting unaffected stock price), but concluding that “ . . . the court’s decision, which narrowly applied to the facts in the Aruba case, raises questions because it doesn’t settle the dispute on how much weight to give the market price” and “. . . raises questions about when and where to use them, or what kind of evidence is needed[.]”

From Business LawProf Blog, discussing how Aruba fits with Dell and DFC in how one figures out what the real purpose of the remedy is.

From Reuters, on how Aruba may hurt appraisal arbitrage.