Verition Partners Master Fund Ltd. v. Aruba Networks Inc.

 株式買取請求権で市場価格を用いた例。

The forceful discussion of the efficient capital markets hypothesis in Dell and DFC indicates that Aruba’s unaffected market price is entitled to substantial weight.

[C]orporate finance theory reflects a belief that if an asset-such as the value of a company as reflected in the trading value of its stock-can be subject to close examination and bidding by many humans with an incentive to estimate its future cash flows value, the resulting collective judgment as to value is likely to be highly informative . . . .

“Market prices are typically viewed superior to other valuation techniques because, unlike, e.g., a single person’s discounted cash flow model, the market price should distill the collective judgment of the many based on all the publicly available information about a given company and the value of its shares.” “[I]n many circumstances a property interest is best valued by the amount a buyer will pay for it” and “a well-informed, liquid trading market will provide a measure of fair value superior to any estimate the court could impose.”

In this case, because Aruba’s shares “were widely traded on a public market based upon a rich information basis,” the fair value of the petitioners’ shares “would, to an economist, likely be best reflected by the prices at which their shares were trading as of the merger.” Aruba had “a deep base of public shareholders” and “highly active trading,” so “the price at which its shares trade is informative of fair value.” The unaffected thirty- day average market price of Aruba’s stock was $17.13 per share.

Dell and DFC teach that the deal price is also entitled to substantial weight. “In economics, the value of something is what it will fetch in the market. That is true of corporations, just as it is true of gold.” For a court to give weight to the deal price, it need not be the most reliable evidence of the Company’s value as a going concern.472 This court has authority “to determine, in its discretion, that the deal price is the most reliable evidence of fair value … , and that’s especially so in cases … where things like synergy gains or minority stockholder discounts are not contested.”

The deal price in this case resulted from an arm’s-length transaction involving a publicly traded company without a controlling stockholder. The deal price in this case contained synergies, so it logically exceeded fair value. There is also the fact that the petitioners failed to identify a bidder who would pay more than HP. “Fair value entails at minimum a price some buyer is willing to pay ….” Taken together, these propositions indicate that the deal price in this case operates as a ceiling for fair value.

The Dell and DFC decisions recognize that a deal price may include synergies and endorse deriving an indication of fair value from the deal price by deducting synergies. In this case, the evidence shows that the deal generated significant synergies. Using the low-end synergy range implies a standalone value of $21.08 per share. Using the high-end synergy range implies a standalone value of $15.32 per share. This decision has adopted the midpoint of $18.20 per share as its deal-price-less-synergies value.

This decision does not give any weight to the discounted cash flow analyses. As in Dell, “this appraisal case does not present the classic scenario in which there is reason to suspect that market forces cannot be relied upon to ensure fair treatment of the minority.” Discounted cash flow models are “often used in appraisal proceedings when the respondent company was not public or was not sold in an open market check.”

The reason for that is not that an economist wouldn’t consider the best estimate of a private company’s value to be the price it sold at in an open sale process of which all logical buyers were given full information and an equal opportunity to compete. Rather, the reason is that if such a process did not occur, corporate finance instructs that the value of the company to potential buyers should be reflected in its ability to generate future cash flows.

“But, a single person’s own estimate of the cash flows are just that, a good faith estimate by a single, reasonably informed person to predict the future. Thus, a singular discounted cash flow model is often most helpful when there isn’t an observable market price.” When market evidence is available, “the Court of Chancery should be chary about imposing the hazards that always come when a law-trained judge is forced to make a point estimate of fair value based on widely divergent partisan expert testimony.”

The unaffected market price provides direct evidence of the collective view of market participants as to Aruba’s fair value as a going concern during the period before the announcement of the transaction, which could be different than Aruba’s fair value as of closing. The same disconnect exists for the deal price, which provides evidence of how the parties to the merger agreement valued Aruba during the price negotiations, which could be different than Aruba’s fair value as of closing. Addressing a similar issue in the Union Illinois case, Chief Justice Strine described the temporal gap as a “quibble” and “not a forceful objection,” noting that “[t]he negotiation of merger terms always and necessarily precedes consummation.”484 Observing that “[n]othing in the record persuades me that [the company] was more valuable by [closing] than it was when the Merger terms were set,” he continued to use the deal price as an indicator of value.485 Similarly in this case, neither side proved that Aruba’s value had changed materially by closing, so this decision sticks with the unaffected market price and the deal price less synergies.

For Aruba, using its unaffected market price provides the more straightforward and reliable method for estimating the value of the entity as a going concern. I could strive to reach the same endpoint by backing out shared synergies and a share of value for reduced agency costs, but both steps are messy and provide ample opportunities for error. For Aruba, the unaffected market price provides a direct estimate of the same endpoint. Rather than representing my own fallible determination, it distills “the collective judgment of the many based on all the publicly available information about a given company and the value of its shares.” “[T]he price produced by an efficient market is generally a more reliable assessment of fair value than the view of a single analyst,” particularly when a trial judge is playing the analyst’s role.

This approach does not elevate “market value” to the governing standard under the appraisal statute. The governing standard for fair value under the appraisal statute remains the entity’s value as a going concern. For Aruba, the unaffected public market price provides the best evidence of its value as a going concern.

In this case, the best evidence of Aruba’s fair value as a going concern, exclusive of any 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. That figure relied on its expert’s discounted cash flow analysis, which this decision has found unpersuasive.

“When … none of the parties establishes a value that is persuasive, the Court must make a determination based on its own analysis.” The appraisal statute requires that “the Court shall determine the fair value of the shares.” This means that I must reach my own, independent determination of fair value. That determination is $17.13 per share.

(footnotes omitted)

via Morris James

Fried Frank, The Appraisal Landscape: Key Points, Open Issues, and Practice Points

 2017年のデラウェア州最高裁による株式買取請求権に関する2つの事件(DFC GloblとDell)に関する法律事務所のメモランダムです。著者の一人であるScott Luftglass氏とは、Davis Polk時代に一緒に働いたことがあります。典型的な訴訟弁護士で、訴訟弁護士は、事務屋よりも緻密だと感じました。今回の記事もよく纏まっています。

via Harvard

Six US Market Regulation Predictions for 2018

 私が働いていた事務所のパートナーによる2018年の米国における市場規制に関する記事です。フィナンシャル・タイムズに掲載された模様。

(4). SEC to seek fiduciary standard for broker-dealers

The conventional wisdom is that Trump appointees will remove, rather than add, new regulatory requirements, but there are a few critical areas that belie this expectation. For example, Jay Clayton, chairman of the Securities and Exchange Commission, has expressed a strong commitment to tackle the fiduciary standard for brokers in 2018. The Department of Labor recently delayed until mid-2019 the implementation of key provisions of its fiduciary rule that applies to transactions with retirement account clients. The delay provides breathing room for coordination on a consistent approach by the two agencies. Look for possible complications, however, due to the arrival of two new commissioners at the SEC this year, each of whom may have very different views of the necessity and impact of moving from a suitability to a fiduciary standard for brokers.

(5). More enforcement actions related to virtual currencies

We expect the explosion of public interest in the trading of virtual currencies and virtual-currency-related products to continue. US regulators spent much of the second half of 2017 actively focused on these products and the regulatory issues they raised. The SEC, CFTC and state regulators all warned the public of the potential risks of trading in these products. While agencies brought enforcement actions in instances of clear fraud or manipulation, for the most part their efforts have been focused on clarifying the scope of their authority and the application of their regulations to these activities. We believe this approach is likely to shift very quickly and sharply as the regulators pivot to an enforcement mode. Market participants, particularly those involved in offering or selling unregistered securities or who deal in these products without the necessary licences, will be much more likely to face enforcement action than in the past.