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Say goodbye to a chunk of that sweet Aruba payout, hedgies – judge

Complainants hoped to squeeze more from HP

Hedge funds wanting a court-ordered higher share price from HP when it acquired Aruba have been dealt a blow costing them $17.3m.

HP bought wireless networking supplier Aruba for $2.8bn in May 2015, paying $24.67/share. There were no other bidders and lawsuits were filed by stockholders arguing HP should have paid a higher price.

One of them was an appraisal suit from stockholders, led by a pair of Verition hedge funds and filed in August 2015.

A judge in the Delaware Chancery court* has held in a 129-page opinion (PDF) that they should receive just $17.13/share for their Aruba holdings. This price is based on Aruba's fair value as a going concern, not the deal price, he maintained.

The judge, Vice Chancellor J Travis Laster, said in his ruling that this is best found by using the 30-day average market price, based on the collective view of investors, and not calculated using Discounted Cash Flow (DCF) analyses, which are loaded with individual human error.

The petitioning hedgies suggested a valuation of $32.57/share using DCF, while Aruba's experts arrived at $19.75.

Laster's ruling follows a three-day trial in December 2016 and was influenced by the US Supreme Court's views concerning the $25bn deal to take Dell private and also the $1.3bn private equity purchase of DFC Global. The Supreme Court said market prices should be used to assess the fair value of such firms, not DCF.

The hedgies' counsel argued that HP underpaid because it took advantage of a trough in Aruba's stock price. Laster rejected this view. He concluded: "There is good reason to think that the deal price ($24.67/share) exceeded fair value."

So: "The petitioners are awarded $17.13 per share. The legal rate of interest, compounded quarterly, shall accrue on this amount from the date of closing until the date of payment."

That $17.13/share gets them $39.2m, some $17.3m less than the $56.5m they would have netted at the $24.67/share deal price. ®


* The case is Verition Multi-Strategy Master Fund Ltd. et al. v. Aruba Networks Inc, case number 11448, in the Court of Chancery of the State of Delaware.

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