MEMORANDUM OPINION

Date Submitted: February 27, 2018 Date Decided: May 21, 2018 Stuart M. Grant, Michael J. Barry, Christine M. Mackintosh, Michael T. Manuel, Rebecca A. Musarra, GRANT & EISENHOFFER P.A., Wilmington, Delaware; Attorneys for Petitioners. Michael P. Kelly, Steven P. Wood, McCARTER & ENGLISH, LLP, Wilmington, Delaware; Marc J. Sonnenfeld, Karen Pieslak Pohlmann, Laura Hughes McNally, MORGAN, LEWIS & BOCKIUS LLP, Philadelphia, Pennsylvania; Attorneys for Respondent. LASTER, V.C.

In May 2015, Hewlett-Packard Company (“HP”) acquired Aruba Networks, Inc. (“Aruba” or the “Company”). Under the merger agreement, each share of Aruba common stock was converted into the right to receive consideration of $24.67 per share, subject to the holder’s statutory right to eschew the merger consideration and seek appraisal.^[1] The petitioners perfected their appraisal rights and litigated this statutory appraisal proceeding.

In a post-trial memorandum opinion dated February 15, 2018, I determined that the fair value of Aruba for purposes of appraisal was $17.13 per share.2 In reaching this conclusion, I relied heavily on the Delaware Supreme Court’s recent decisions in Dell3 and DFC.^[4] As I read them, those decisions endorsed using the market price of a widely traded firm as an indicator of fair value if the market for the shares of the firm exhibited attributes associated with the premises underlying the efficient capital markets hypothesis.^[5] As I read them, those decisions also endorsed using the deal price in a third-party, arm’s-length transaction as an indicator of fair value, after deducting synergies from the deal price.^[6] As I read them, those decisions also cautioned against relying on discounted cash flow analyses prepared by adversarial experts when reliable market indicators are available.^[7]

Informed by my readings of Dell and DFC, the Post-Trial Ruling declined to give any weight to the expert valuations, which relied on discounted cash flow analyses to reach divergent results.^[8] The market for Aruba’s common stock exhibited attributes consistent with the premises of the efficient capital markets hypothesis, 9 so I considered Aruba’s thirty-day average unaffected market price of $17.13 per share to be a reliable indicator of value.^[10] I also considered the deal price to be a reliable indicator of value, but concluded that Dell, DFC, and the appraisal statute required adjustments to exclude “any element of value arising from the accomplishment or expectation of the merger.”11 Based on a study cited by the respondent’s expert and synergy estimates in the record from Aruba and HP, I derived a midpoint valuation indication based on the deal-price-minus-synergies of $18.20 per share.^[12]

I then confronted the challenge of how to harmonize, weigh, or otherwise decide between two probative yet divergent indications of fair value. Although my deal-price- minus-synergies indicator represented my best effort under the circumstances, it potentially suffered from a variety of measurement errors, raising concerns about its reliability.^[13] I also concluded, based on the work of leading scholars, that my deal-price-less-synergies figure continued to incorporate an element of value derived from the merger itself: the value that the acquirer creates by reducing agency costs through the aggregation of a control position (here 100% ownership).14 Under the appraisal statute, the petitioners should not be entitled to share in that element of value, because it “aris[es] from the accomplishment or expectation of the merger.”15 My synergy deduction compensated for the one element of value arising from the merger, but addressing this other aspect would require a further downward adjustment.^[16] By contrast, the market value indicator did not require adjustments. Under a traditional formulation of the efficient capital markets hypothesis, the unaffected market price provides a direct indication of the value of the subject company based on its operative reality independent of the merger, at least for a company that is widely traded and lacks a controlling stockholder.^[17] I therefore concluded on the facts presented that the most persuasive evidence of Aruba’s fair value was its unaffected trading price of $17.13 per share.^[18]

Under Court of Chancery Rule 59(f), “[a] motion for reargument setting forth briefly and distinctly the grounds therefor may be served and filed within 5 days after the filing of the Court’s opinion or the receipt of the Court’s decision.”19 The petitioners have moved for reargument.^[20]

As movants, the petitioners bear the burden of demonstrating that I “overlooked a decision or principle of law that would have controlling effect” or “misapprehended the law or the facts so that the outcome of the decision would be affected.”21 A party moving for reargument is not permitted “to raise new arguments that they failed to present in a timely way.”22 An argument that was not previously raised “is therefore waived, and the motion must be denied for that reason alone.”23 Rule 59 is also “not a vehicle to rehash or more forcefully present arguments already made.”24 “[T]he Court will deny a motion for reargument that does no more than restate a party’s prior arguments.”25

The Reargument Motion advances what appear to be eight grounds for reargument. In the order presented, they are: • I misapprehended the law due to my “frustration with many of the Supreme Court’s pronouncements.”26 • I misapprehended both the law and the facts by reaching “an absurd result that no litigant would even ask for.”27 • I misapprehended the import of the discussion of the efficient capital markets hypothesis in Dell and DFC, because “the superior tribunal simply referred to the ECMH to criticize the Court of Chancery’s reliance on information that the Supreme Court deemed was known to the market as a reason for not giving substantial weight to the deal price.”28 • I misapprehended the facts when applying the efficient capital markets hypothesis because the trial record established that there was information about the value of Aruba that had not been incorporated into the unaffected market price.^[29] • I misapprehended the law because relying on the unaffected trading price as an indicator of value is “ridiculous.”30 • I acted “arbitrarily and capriciously” by using a 30-day average to measure the unaffected market price rather than some other period.^[31] • I misapprehended the law and the facts because “the measuring point for the valuation is supposed to be the closing date (May 18, 2015), but the Court effectively used the 30 day period between January 26, 2015 and February 24, 2015 as the ‘valuation date.’”32 • I violated my “oath to Delaware to uphold the Delaware Constitution”33 by using the unaffected market price as an indicator of fair value because this means, as a practical matter, “that there can never be an appraisal for a public company receiving a premium offer, regardless of the size of that premium.”34 This approach “eliminated the statutory right to appraisal provided by the General Assembly in the context of a publicly traded company.”35 In this decision, I take the liberty of grouping conceptually similar objections together, rather than following the order in which the petitioners presented them.

This decision denies the Reargument Motion. The petitioners have not shown that I misapprehended the facts or the applicable law. When preparing the Post-Trial Ruling, I reasoned through the issues as best I could and reached what I believe is the correct determination of fair value for purposes of this case. At this point, the proper institutional remedy for correcting any errors lies with the senior tribunal on appeal.

A. Objections To The Application Of The Legal Framework

Three of the petitioners’ objections accept for the sake of argument that the Post- Trial Ruling could rely on the unaffected market price as a valuation indicator, but they assert that I misapprehended the law and the facts when doing so. These are the petitioners’ most straightforward contentions, so this decision starts with them.

1. The Use Of A Thirty-Day Average

The petitioners contend that I acted “arbitrarily and capriciously” by using a 30-day average to determine the unaffected market price rather than some other measurement period.^[36] The petitioners claim that “[t]here is no record evidence or citation to support that choice.”37 They ask rhetorically, “Does an efficient market really take 30 days to adjust to provide evidence of fair value . . . ? Why isn’t it 90 days? Why isn’t it 1 day?”38 They note that the period chosen makes a substantial difference in the outcome:

[H]ad the Court selected 1 day, the fair value would have been $18.38; had it selected 90 days, it would have been $18.81; had it selected 120 days, it would have been $19.51; had it selected the opening price the day HP first approached Aruba about a deal, it would have been $22.01.39 The petitioners’ objection to the 30-day measurement period represents a new argument that is not cognizable under Rule 59(f).

During post-trial briefing and at post-trial argument, the respondent consistently argued for using Aruba’s 30-day average trading price, measured before the news of a potential deal leaked, as the relevant metric for the unaffected market price.^[40] The respondent did not bury the lede: Aruba identified this metric in the opening lines of every one of its post-trial briefs, and its counsel mentioned it at the outset of his argument during the post-trial hearing.^[41]

The petitioners never contested the 30-day metric, nor did they offer a different one. They took the broader position that Aruba’s market price was depressed and unreliable. The petitioners could have engaged on the proper measurement period for market value by noting that they believed that the market price was unreliable, but that if the court disagreed and chose to consider that metric, then the court should use a different measurement period. Parties often make alternative arguments of this type. Rather than engaging in this manner, the petitioners did not advocate in favor of any metric for market value. Even now, the Reargument Motion does not argue that the court should have used a particular measurement period. The Reargument Motion simply observes that different measurement periods could produce different valuation indications.

Had the petitioners engaged on the measurement period, then the respondent doubtless would have provided support for the 30-day metric. In response to the Reargument Motion, the respondent has cited authorities indicating that using a 30-day period is both “generally considered acceptable in the financial community” 42 and within a court’s discretionary judgment.^[43] I would have considered the parties’ competing arguments, and perhaps there would have been good reason to choose a different period. But the petitioners did not engage on how long the measurement period should be. They chose to reject market value entirely. For the petitioners to dispute the proper measurement period now constitutes a new argument that is beyond the scope of Rule 59(f).

The petitioners also point out that I did not provide a footnoted record citation for the source of the 30-day average. This argument presents a somewhat different point than their objection to the 30-day average because the petitioners could not have raised this omission before seeing the Post-Trial Ruling.

Because the 30-day measurement period permeated the briefing, it did not occur to me to provide a footnoted record citation to support it. It appeared uncontested that if I adopted market value as a metric, then the 30-day average was an appropriate measurement period and $17.13 per share was the relevant figure. The Post-Trial Ruling spanned 129 pages and was encumbered by 498 footnotes. In my view, the omission of a 499th footnote does not rise to a misapprehension of fact sufficient to warrant reargument.

2. The Gap Between The Market Indication And The Valuation Date

The petitioners next contend that I misapprehended the law because “the measuring point for the valuation is supposed to be the closing date (May 18, 2015), but the Court effectively used the 30 day period between January 26, 2015 and February 24, 2015 as the ‘valuation date.’”44 I did not misapprehend the law regarding the valuation date or miss the fact that using earlier market measures resulted in a temporal gap between the evidence of value and the valuation date. The Post-Trial Ruling considered the issue explicitly,45 just as I have done in other appraisal decisions.^[46]

The Post-Trial Ruling found that “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.”47 As support for the legitimacy of this determination, the Post-Trial Ruling cited Chief Justice Strine’s decision in the Union Illinois case, issued while he served on this court, in which he reached a similar conclusion regarding the insignificance of the temporal gap based on the record presented in that matter.^[48]

The petitioners have not shown that I misapprehended the law or facts as to the temporal gap. They simply disagree with the finding made in the Post-Trial Ruling. That disagreement gives rise to an issue for appeal, not grounds for reargument.^[49] 3. The Existence Of Information That Was Not Known To The Market

The petitioners also contend that I misapprehended the facts when applying the efficient capital markets hypothesis as framed in Dell and DFC because the trial record established that there was information about the value of Aruba that was undisclosed and could not have been incorporated into the unaffected market price.^[50] The petitioners contend that by using the 30-day unaffected market price, the Post-Trial Ruling effectively adopted the strong form of market efficiency rather than the semi-strong form that the Dell and DFC decisions endorsed.^[51]

I agree that the Delaware Supreme Court’s decisions in Dell and DFC endorsed a traditional version of the semi-strong form of the efficient capital markets hypothesis, not the strong form.^[52] Under the semi-strong version, information concerning a company is quickly impounded into the company’s stock price such that the price reflects the information. The semi-strong form of the hypothesis differs from the strong form, in which stock prices reflect all information relevant to value, both public and nonpublic.^[53] The petitioners now argue that I found that there was information that was not impounded into the trading price. In the Post-Trial Ruling, I made the following findings about Aruba’s release of information to the market:

At the end of January 2015, HP offered to acquire Aruba for $23.25 per share. During the first week of February, while Aruba was considering its response, another analyst report criticized the Company, and the stock price fell again, closing around $16.07 the day after the report. Contrary to the market’s perception, Aruba management knew internally that Aruba was having an excellent quarter and would beat its guidance. But, rather than correcting the market’s perception, Aruba management proposed to time the announcement of the merger to coincide with the announcement of Aruba’s February 2015 earnings. Companies often announce significant items as part of an earnings release, particularly if the earnings are bad and the news is good (or vice versa). In this case, Aruba management believed that an increase in the stock price would hurt their chances of getting the deal approved. Providing both pieces of information simultaneously would blur the market’s reaction to Aruba’s strong quarterly results and help get the deal approved.^[54] I noted that after Aruba announced its strong quarterly results in conjunction with the merger, “Aruba’s stock traded briefly above the deal price, indicating the market took into account both the announcement of the deal and Aruba’s strong results.”55

As with the measurement period, the petitioners could have used the conjunctive announcement as an opportunity to engage with the respondent’s proffered measure of the unaffected market price and argue for a higher figure. Had they done so, then in my view the respondent would have had a strong argument that to the extent the market price reacted to news of the deal, the resulting valuation impact represented an “element of value arising from the . . . expectation of the merger.”56 That argument would have forced the petitioners to try to disentangle the effect of the earnings information from the effect of the merger announcement.^[57]

The petitioners did not make the attempt. Instead, they argued broadly that the market price was unreliable and should be disregarded because investors were undervaluing Aruba. The Post-Trial Ruling considered that argument and rejected it.^[58]

For the petitioners now to argue that I should have constructed and considered a different market price constitutes a new argument. It does not provide a basis for relief under Rule 59(f).

B. Objections To The Interpretation Of Dell And DFC That Created The Legal Framework

The petitioners’ next three objections disagree with the Post-Trial Ruling’s reliance on Aruba’s unaffected market price as a valuation indicator. They contend that the Post- Trial Ruling misapprehended the import of the Delaware Supreme Court’s rulings in Dell and DFC and should not have considered the unaffected market price. This is logically the next set of arguments to tackle.

56 8 Del. C. § 262(h).

1. Whether Dell And DFC Meant To Endorse The Efficient Capital Markets Hypothesis As A Valuation Tool

The petitioners argue that the Post-Trial Ruling misapprehended the import of the discussion of the efficient capital markets hypothesis in Dell and DFC, because neither decision “required the Court of Chancery to weight the supposedly ‘unaffected’ market trading price at all.”59 Rather, the petitioners say that “the superior tribunal simply referred to the ECMH to criticize the Court of Chancery’s reliance on information that the Supreme Court deemed was known to the market as a reason for not giving substantial weight to the deal price.”60

I agree that Dell and DFC did not require the Court of Chancery to give weight to the unaffected market price. The Post-Trial Ruling did not proceed on the premise that I was required to give weight to the unaffected market price, nor did I ultimately give exclusive weight to the unaffected market price because I thought I was required to do so.

Instead, I perceived that Dell and DFC endorsed the reliability of the unaffected market price as an indicator of value, at least for a widely traded company, without a controlling stockholder, where the market for its shares has attributes consistent with the assumptions underlying the efficient capital markets hypothesis. As a result, I believe that trial courts now can (and often should) place heavier reliance on the unaffected market price.

From my standpoint, this aspect of the Dell and DFC decisions represented a change in direction for Delaware appraisal law. Before Dell and DFC, my conceptual framework for approaching the determination of fair value called for regarding the trading price with skepticism, while having relatively greater confidence in the contemporaneous views of management and other sophisticated parties and placing relatively greater reliance on management projections prepared in the ordinary course of business. This skeptical approach to market prices did not flow from any personal value judgment on my part, but rather from how Delaware Supreme Court decisions had treated the unaffected trading price as a valuation indicator.^[61]

The relatively diminished role of the market price in this conceptual framework also influenced the circumstances under which I perceived that the deal price would provide reliable evidence of fair value. While recognizing the potential relevance of that indicator, I believed that if contemporaneous evidence from knowledgeable insiders indicated that the company’s market price was depressed, then the party arguing for reliance on the deal price (typically the respondent) would bear the burden of showing that the process had provided a sufficient opportunity for price discovery to warrant regarding the deal price as a reliable indicator of fair value.^[62] I have previously described my then-operative understandings of what this inquiry contemplated, so I will not repeat them here.^[63]

As discussed in greater detail below, the Delaware Supreme Court’s decisions in Dell and DFC contained an unprecedented level of discussion of the efficient capital markets hypothesis.^[64] To my mind, the Delaware Supreme Court’s endorsement of the would “improve stockholder liquidity, generate more analyst exposure, and create a more efficient market for Southern Peru shares”). A fifth quoted my observation in a post-trial decision that “the reliability of an observed beta depends on an efficient trading market.” RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816, 867 (Del. 2015) (quoting In re Rural Metro Corp. S’holders Litig., 88 A.3d 54, 108-09 (Del. Ch. 2014)).

The last two of the pre-Dell and DFC decisions involved appraisal cases. In one, the Delaware Supreme Court referred to the “efficient market” when describing the respondent’s request on appeal for the creation of a presumption that the deal price equated to fair value, which the high court declined to adopt. See Golden Telecom, Inc. v. Glob. GT LP, 11 A.3d 214, 216 (Del. 2010) (“Supported by the arms-length nature of the merger and the efficient market price, Golden contends that the merger price indicated Golden’s fair value for purposes of appraisal.”). The final decision cited Eugene Fama’s seminal Efficient Capital Markets in support of the observation that “[i]nformation and insight not communicated to the market may not be reflected in stock prices; thus, minority stockholders being cashed out may be deprived of part of the true investment value of their shares.” Cede & Co. v. Technicolor, Inc. (Technicolor I), 542 A.2d 1182, 1187 n.8 (Del. 1988). The only substantive reference—Technicolor I—thus cut against relying on the efficient capital markets hypothesis, not in favor of it, as did the eventual outcome in that case.

In the interest of completeness, there is one pre-DFC decision from the Delaware Supreme Court that referred favorably to market price as a method of determining value. See Applebaum v. Avaya, Inc., 812 A.2d 880 (Del. 2002). The Applebaum decision interpreted Section 155(2) of the Delaware General Corporation Law, which states that when a reverse stock split or other transaction generates fractional shares, a corporation may “pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined.” 8 Del. C. § 155(2). A corporation used the market price to determine the amount due for factional shares following a reverse stock split. The Court of Chancery upheld this determination, and the Delaware Supreme Court affirmed, stating that “the Vice Chancellor properly held that the trading price of actively-traded stock of a corporation, the stock of which is widely held, will provide an adequate measure of fair value for the stockholders’ fractional interests for purposes of a reverse stock split under Section 155.” Applebaum, 812 A.2d at 883. The high court later reiterated that “[t]he Vice Chancellor correctly concluded that a well-informed, liquid trading market will provide a measure of fair value superior to any estimate the court could impose.” Id. at 890. The court cautioned, however, that “market price is not employed in all valuation contexts,” citing both the appraisal statute and Smith v. Van Gorkom, 488 A.2d 858, 876 (Del. 1985). See Applebaum, 812 A.2d at 889 & n.28.

efficient capital markets hypothesis suggested a greater (yet still non-mandatory) role for the use of market price when determining fair value.

The petitioners are correct that the structure of the Delaware Supreme Court’s opinions in Dell and DFC permits the interpretation that the Delaware Supreme Court only discussed the efficient capital markets hypothesis en route to endorsing a deal-price-less- synergies metric and that the discussion might carry no weight for purposes of assessing market price as a separate valuation indicator. Both Dell and DFC follow the same broad structure. First, the opinions discussed the efficient capital markets hypothesis. Second, they discussed the sale processes and held that the processes provided sufficiently reliable evidence of fair value that it constituted an abuse of discretion for the trial judge not to have given that indicator greater weight. Third, for completeness, they worked through challenges to the discounted cash flow analyses. Finally, they remanded the cases so that the trial court could consider giving greater weight to the deal price.

Because of this high-level structure, it is possible to read the decisions as discussing the efficient capital markets hypothesis only instrumentally in support of a deal-price-less- synergies metric. I personally considered that possibility, but after multiple readings of Dell and DFC, several factors convinced me that something more was at work.

First, discussing the efficient capital markets hypothesis did not appear to be logically necessary at the appellate level in either Dell or DFC. To endorse the deal price as a valuation indicator, the Delaware Supreme Court could have started and finished by discussing the deal process itself and explaining why market forces generated a reliable price. The DFC court cited a series of Court of Chancery decisions that had given exclusive weight to the deal price.^[65] These decisions focused on whether the deal price resulted from a “proper transactional process.”66 None of the cited decisions discussed the efficient capital markets hypothesis. Only one—Autoinfo—considered an argument that the market price was unreliable because the company “was thinly traded and lacked financial analyst coverage.”67 In addressing this argument, the court discussed the sale process and noted that the resulting deal generated a premium of 22% over the closing price on the last trading day before the announcement of the merger. The court concluded that “[w]hile the market may have been uninformed about AutoInfo before the sale process, it subsequently gained ample information.”68

The Delaware Supreme Court could have followed a similar course in Dell and DFC by focusing on the reliability of the sale process without discussing the efficient capital markets hypothesis or the general reliability of market prices.^[69] Instead, the high court chose to endorse those propositions. To my mind, these aspects of the high court’s decision carried independent doctrinal significance. Moreover, the analytical move seemed particularly meaningful because it represented a departure from prior Delaware Supreme Court precedent, which had not previously endorsed the efficient capital markets hypothesis and had expressed skepticism about the reliability of market prices.^[70]

Second, the opinions in Dell and DFC did not just mention the efficient capital markets hypothesis in passing. Both devoted considerable space to the subject, and both seemed quite forceful in their endorsement of market prices as an indicator of value. Here are a selection of quotations from Dell and DFC that contributed to my impressions on these points: • “[T]he Court of Chancery’s analysis ignored the efficient capital market hypothesis long endorsed by this Court.”71 • “[The efficient capital markets hypothesis] teaches that the price produced by an efficient market is generally a more reliable assessment of fair value than the view of a single analyst, especially an expert witness who caters her valuation to the litigation imperatives of a well-heeled client.”72 • “[T]he [efficient market hypothesis] states that the market assessment of value is more accurate, on average, than that of any individual, including an appraiser.”73 • “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.”74 • When the market for a company’s shares is efficient, “a company’s stock price ‘reflects the judgments of many stockholders about the company’s future prospects, based on public filings, industry information, and research conducted by equity analysts.’”75 • When the market for a company’s shares is efficient, “a mass of investors quickly digests all publicly available information about a company, and in trading the company’s stock, recalibrates its price to reflect the market’s adjusted, consensus valuation of the company.”76 • “As one textbook puts it, ‘[i]n an efficient market you can trust prices, for they impound all available information about the value of each security.’”77 • “‘For many purposes no formal theory of value is needed. We can take the market’s word for it.’”78 • “[T]he relationship between market valuation and fundamental valuation has been strong historically.”79 • “[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 and that, all estimators having equal access to information, the likelihood of outguessing the market over time and building a portfolio of stocks beating it is slight.”80 • “[I]t is unlikely that a particular party having the same information as other market participants will have a judgment about an asset’s value that is likely to be more reliable than the collective judgment of value embodied in a market price.”81 • Although the market price may not always be right, “one should have little confidence she can be the special one able to outwit the larger universe of equally avid capitalists with an incentive to reap rewards by buying the asset if it is too cheaply priced.”82 • “[O]n average, market forecasts and market valuations will be at least as accurate as those produced by individual investors and appraisers, no matter how expert.”83 • “Like any factor relevant to a company’s future performance, the market’s collective judgment of the effect of regulatory risk may turn out to be wrong, but established corporate finance theories suggest that the collective judgment of the many is more likely to be accurate than any individual’s guess.”84 In Dell, after describing Dell’s market capitalization, public float, weekly trading volume, bid-ask spread, and analyst coverage and the response to the news of the buyout offer, the high court observed that “[b]ased on these metrics, the record suggests the market for Dell stock was semi-strong efficient, meaning that the market’s digestion and assessment of all publicly available information concerning Dell was quickly impounded into the Company’s stock price.”85 In its legal analysis, the Delaware Supreme Court returned to and reiterated these points, stressing that the market for Dell’s shares was efficient and that it was error to discount the trading price.^[86] To my mind, this degree of emphasis did not seem solely instrumental, but rather independently important.

Third and more generally, the Delaware Supreme Court stressed in both Dell and DFC that the trial courts must take into account accepted financial and economic principles. This mandate applies to the trial court’s factual findings.^[87] It extends to the trial court’s choice of valuation methodologies.^[88] And it encompasses the final determination of fair value.^[89] As the Delaware Supreme Court repeatedly emphasized in Dell and DFC, the efficient capital markets hypothesis is a widely accepted principle in corporate finance.^[90] It follows that a trial court would be obligated to consider the valuation implications of a stock price generated by a market having attributes consistent with the efficient capital markets hypothesis.

Fourth, particularly in Dell, the Delaware Supreme Court appeared to regard my failure to give weight to the stock price as a separate and distinct source of error. If the petitioners’ instrumentalist view were correct, one would expect the Delaware Supreme Court to have stressed my giving inadequate weight to the deal price (the root cause of the error) and to have placed less emphasis on the market price (the instrumental error). Instead, the Delaware Supreme Court prominently discussed both as sources of error.^[91] Most significantly, the Delaware Supreme Court specifically identified the failure to give weight to the market price as a standalone source of error because the market price itself provided evidence of fair value: “Here, the trial court gave no weight to Dell’s stock price because it found its market to be inefficient. But the evidence suggests that the market for Dell’s shares was actually efficient and, therefore, likely a possible proxy for fair value.”92 This language appeared to me to recognize explicitly that when the market for a company’s shares has attributes associated with the premises underlying a traditional view of the efficient capital markets hypothesis, and the company lacks a controlling stockholder, then the stock market price is “likely a possible proxy for fair value.”93

Finally, as a matter of policy, I was aware that some commentators have expressed concern about a regime that incentivizes appraisal arbitrage and have contended that the statutory interest rate permits appraisal arbitrageurs to generate outsized profits with minimal risk, because the fair value determination often comes in at the deal price or slightly below it.^[94] The Dell and DFC decisions appeared to me to be taking steps to moderate the attractiveness of appraisal arbitrage. From that standpoint, a rule that channeled outcomes towards the deal price could have the effect of bolstering the ability of arbitrageurs to benefit from the interest rate.^[95] That risk would particularly afflict acquisitions by financial sponsors, where the opportunity for operational synergies is generally reduced. For the Delaware Supreme Court to open up the fair value analysis by permitting greater consideration of the unaffected market price seemed to me to be directionally consistent with and perhaps the next logical step in the path laid out by Dell and DFC.

Having considered these factors, I concluded that the discussion of the efficient capital markets hypothesis in Dell and DFC was not merely deployed instrumentally in support of a deal-price-less-synergies metric, but rather was intended to have independent doctrinal heft as a means of altering the traditional skepticism with which Delaware decisions have approached the stock market price when determining fair value. That conclusion represents one individual’s reading of the operative decisions. For present purposes, however, the possibility that Dell and DFC had discussed the efficient capital markets hypothesis only for instrumental purposes was not something that I misapprehended. I was aware of that possibility and considered it when issuing the Post- Trial Ruling.

2. Whether Relying On The Unaffected Market Price Is Ridiculous

In a stronger variant of their argument that the Post-Trial Ruling misapprehended the import of Dell and DFC, the petitioners contend that the those decisions could not have meant what I interpreted them to mean because using the unaffected market price as evidence of fair value is “ridiculous”96 and “absurd.”97 I do not share that view.

The main reason why the petitioners appear to denigrate my reliance on the unaffected market price is that it departs from this court’s traditional approach to determining fair value, which typically relied on multiple metrics, even when appraising a publicly traded company. Indeed, it appears that the Post-Trial Ruling may be the first decision to hold that the unaffected market price was the best evidence of fair value and award that figure.

I do not dispute that the Post-Trial Ruling takes an approach that differs from prior Court of Chancery precedent. As this decision already has noted, Delaware Supreme Court decisions on appraisal that pre-dated Dell and DFC expressed skepticism about the reliability of the market price as an indicator of fair value. In my view, Dell and DFC changed things. I regarded the Delaware Supreme Court’s endorsement of the efficient capital markets hypothesis and its emphasis on market indicators over the subjective views of knowledgeable insiders as altering the decisional landscape and authorizing greater reliance on market value.

If one jettisons the notion that relying on the market price just isn’t done, then it is hard to regard using the unaffected market price as ridiculous or absurd, at least for a publicly traded firm that lacks a controlling stockholder and whose shares otherwise trade in a market having attributes associated with the assumptions underlying the efficient capital markets hypothesis. Reliance on market value is a technique that is “generally considered acceptable in the financial community and otherwise admissible in court.”98 Prominent legal scholars have recommended this approach.^[99] As suggested by the sources that the Delaware Supreme Court cited, finance scholars also endorse it.100 Once the unaffected market price is no longer regarded as a disfavored metric, then it should not be problematic to rely on it exclusively. The Delaware Supreme Court has made clear that a trial court can rely on a single valuation methodology. 101 While serving on this court, Chief Justice Strine invoked a culinary metaphor to argue in favor of using one valuation technique rather than several:

As a law-trained judge who has to come up with a valuation deploying the learning of the field of corporate finance, I choose to deploy one accepted method as well as I am able, given the record before me and my own abilities. Even if one were to conclude that there are multiple ways to come up with a discount rate, that does not mean that one should use them all at one time and then blend them together. Marc Vetri, Mario Batali, and Lidia Bastianich all make a mean marinara sauce. Is the best way to serve a good meal to your guest to cook up each chef’s recipe and then pour them into a single huge pot? Or is it to make the hard choice among the recipes and follow the chosen one as faithfully as a home cook can? This home cook will follow the one recipe approach and use the recipe endorsed by Brealey, Myers and Allen and the mainstream of corporate finance theory taught in our leading academic institutions . . . .102 In DFC, the Delaware Supreme Court similarly cautioned against using multiple valuation techniques, admonishing that the Court of Chancery “may well feel tempted to turn its valuation decisions into a more improvisational variation of the old Delaware Block Method, but one in which the court takes every valuation method put in the record, gives each equal weight, and then divides by the number of them.” 103 The high court mandated that if the Court of Chancery relies on multiple valuation methods, it “must exercise its considerable discretion while also explaining, with reference to the economic facts before it and corporate finance principles, why it is according a certain weight to a certain indicator of value.”104 The high court admonished that “[i]n some cases, it may be that a single valuation metric is the most reliable evidence of fair value and that giving weight to another factor will do nothing but distort that best estimate.”105

The Dell and DFC decisions observe that while the unaffected market price need not equate to fundamental value, it nevertheless generates a measure of value that is more likely to be accurate than other methodologies. “[T]he efficient market hypothesis long endorsed by this Court . . . teaches that the price produced by an efficient market is generally a more reliable assessment of fair value than the view of a single analyst . . . .”106

[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

103 DFC, 172 A.3d at 388. 104 Id. 105 Id. 106 Dell, 177 A.3d at 24.

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 and that, all estimators having equal access to information, the likelihood of outguessing the market over time and building a portfolio of stocks beating it is slight.107 A single valuator, such as a trial judge conducting an appraisal, “should have little confidence she can be the special one able to outwit the larger universe of equally avid capitalists with an incentive to reap rewards by buying the asset if it is too cheaply priced.”108 And even a “market that is not perfectly efficient may still value securities more accurately than appraisers who are forced to work with limited information and whose judgments by nature reflect their own views and biases.”109 Like democracy, the unaffected market price may be imperfect, but absent proof undermining its premises, it often will be better than the other metrics that have been tried.110

I therefore cannot agree that using the unaffected market price as the most reliable indicator of fair value is so ridiculous or absurd as to mean that I misapprehended the law. I do not claim to have privileged insight into the high court’s intent, and I may well have misunderstood the import of Dell and DFC, but that is a matter for appeal, not for a motion for reargument.

3. An Outcome That No Litigant Proposed

A third reason that the petitioners regard the Post-Trial Ruling as necessarily misapprehending Dell and DFC is because it resulted in a fair value conclusion “that no litigant would even ask for.”111 The assertion that no litigant would ask for an award equal to the unaffected trading price seems limited to the facts of this case. If respondents in appraisal proceedings believe that the facts and the law can support an appraisal award equal to the unaffected trading price, they doubtless will ask for that outcome.

Limiting the assertion to the facts of this case, the respondent actually did propose that I rely on the unaffected market price.112 In every one of its briefs, the respondent argued that Aruba’s unaffected trading price of $17.13 per share was informative of fair value. 113 Moreover, in its post-trial brief on the implications of Dell, the respondent advanced the following proposition: “[I]n response to the Supreme Court’s recent guidance in Dell and [DFC], Aruba now understands that its pre-transaction market price is indeed the single most important mark of its fair value.”114 Consequently, the respondent asserted that “the Court should find fair value to be Aruba’s 30-day unaffected market price of $17.13.”115 But the picture is more complicated, because what actually happened is that the respondent’s valuation position evolved over the course of the case. As the Post-Trial Ruling explained,

During discovery and at trial, both sides focused on their experts’ discounted cash flow valuations. As the number of opinions that focused on the deal price mounted, the respondent placed greater emphasis on that metric, and the petitioners responded by attacking the process that led to the deal. After DFC, the respondent stressed a combination of the unaffected market price and the deal price. After Dell, the respondent redoubled its emphasis on the combination of the unaffected market price and the deal price.116 During post-trial argument, before the parties provided their supplemental submissions on Dell, the petitioners chastised the respondent for presenting a moving target in its valuation assertions.117 In response, the respondent cited various valuation indications, including the unaffected market price, but counsel ultimately asserted that they were relying on their expert’s updated valuation opinion of $19.75 per share as their valuation contention.118

Taking this history into account, I thought it reasonable when making my fair value determination to regard the respondent as bound by their contention that the minimum fair value for Aruba was $19.75 per share. Given this fact, I debated whether I should award what I believed represented the most reliable estimate of fair value, or whether, notwithstanding my belief, I should award $19.75 on the theory that the respondent should be estopped from benefitting from a valuation lower than what it had endorsed.

I ultimately found persuasive the authorities which require this court to make its own, independent valuation determination.119 I also was concerned, as a matter of policy, that to hold that a court would not go outside the range of fair value established by the parties might further incentivize parties to adopt extreme valuation positions as a means of demarcating the widest possible field in which the court could exercise its discretion.

On different facts, holding a party to its valuation contention might be warranted. For present purposes, however, because I considered the issue when issuing the Post-Trial Ruling, it does not result in a misapprehension of fact or law that would support a motion for reargument.

C. Objections To My Good Faith In Rendering The Post-Trial Ruling

The petitioners’ final two arguments question my good faith in issuing the Post- Trial Ruling. The short answer is that notwithstanding the petitioners’ suspicions, I honestly did the best I could.

1. An Act Of Political Theater

The petitioners initially argue that I issued the Post-Trial Ruling as an act of political theater designed to show the Delaware Supreme Court the error of its ways. They sympathize that the Post-Trial Ruling must reflect my “frustration with many of the Supreme Court’s pronouncements,”120 only to posit that this frustration led me to pen a decision designed to show “the absurdity of the literal application of certain pronouncements made by the Supreme Court in Dell and DFC to appraisal actions.”121 They conclude that I must be engaging in a “battle of legal titans” with the Delaware Supreme Court and that the emotional fervor of intellectual combat led me to impose an unjust ruling.122 The motion strives to remind me that the petitioners are not characters in an academic hypothetical but “real” litigants with “real dollars at stake” who should not be turned into “collateral damage.”123 Technically, this argument neither contends that I “overlooked a decision or principle of law that would have controlling effect,” nor that I “misapprehended the law or the facts so that the outcome of the decision would be affected.”124 At one level, it contends that I apprehended the language of Dell and DFC too well and took it too seriously. Read fairly, however, it contends that I did not carry out the judicial task of rendering a decision based on the applicable law and the facts of the case, but rather sacrificed the petitioners’ interests because of intellectual vanity. If this were true, it would seem to me to provide a legitimate basis for reargument. Indeed, in my view it would provide grounds for vacating the decision and asking the Chancellor to reassign the case to a colleague who could carry out the responsibilities of a judicial officer. Those responsibilities include that a judge “perform the duties of the office impartially and diligently”125 and be “unswayed by partisan interests, public clamor, or fear of criticism.”126 If the petitioners were correct, then I permitted partisan intellectual interests to affect my impartiality and sway the outcome.

Recognizing that the human mind does not offer an Archimedean perch for self- assessment, I nevertheless have sought to take seriously the petitioners’ assertion that I did not try in good faith to follow Dell and DFC. Rather than rejecting the petitioners’ rather extraordinary position at face value, I have carefully re-read DFC, Dell, and other appraisal authorities, and I have re-read the Post Trial Ruling with the petitioner’s concern squarely in mind.

After undertaking this process, I do not believe that that petitioner’s contention is accurate. I personally do not believe that I issued the Post-Trial Ruling out of frustration. To the contrary, I personally believe that I engaged in a lengthy, laborious (in both senses), and reasoned effort to implement Delaware Supreme Court precedent.

For starters, I am lot a legal titan. I am a state court trial judge. I personally do not think that the role of a trial judge accommodates active resistance to Delaware Supreme Court pronouncements. I rather view the job as calling for adherence to Delaware Supreme Court precedent. While I think it is fair game for a trial judge to suggest potential changes in the law,127 I do not believe that a trial judge has the flexibility to disregard the Delaware Supreme Court’s holdings, nor do I think that a trial judge should look for clever ways to evade their implications. When a new precedent arrives, I view my job as requiring that I update my understanding of Delaware law to incorporate the new precedent.

That is what I tried to do in this case. As this decision already has discussed at length, I made this effort when evaluating the persuasiveness of the unaffected market price.

I made a similar effort when evaluating the persuasiveness of the deal price. As discussed in the Post-Trial Ruling, the petitioners in this case proved that the sale process had flaws,128 so it was critical for me to attempt to understand whether the deal price could be regarded as a reliable valuation indicator under the framework envisioned by Dell and DFC. From a conceptual standpoint, I imagined four hypothetical bands of deal-price reliability, ranging from the most reliable to least reliable: • Band 1: A sale process is so well-constructed and well-executed that a trial court would err by not giving the deal price heavy, if not dispositive, weight. • Band 2: A sale process is sufficiently good that the trial court would err by not treating the deal price as a reliable valuation indicator, but the trial court would not commit error by failing to give the deal price heavy, if not dispositive, weight. • Band 3: The sale process is sufficiently flawed that the trial court could determine without erring that the deal price was not a reliable valuation indicator. • Band 4: The sale process is so flawed that the trial court would err by treating the deal price as a reliable valuation indicator. Although I have described these bands as separate domains, the lines between them necessarily will be fact-specific and fuzzy.

In this case, the petitioners argued that the sale process fell squarely into Band 4 or, at worst, in the lower range of Band 3. The respondent argued that the sale process fell within Band 1 or, at worst, within Band 2. As I read Dell and DFC, those decisions placed the deal prices in those cases in Band 1. At the trial level in DFC, Chancellor Bouchard found that the sale process was sufficiently reliable to warrant consideration as a valuation indicator, and he gave it one-third weight. The Delaware Supreme Court reversed, holding that “under the conditions found by the Court of Chancery, economic principles suggest that the best evidence of fair value was the deal price.”129 Likewise in Dell, I found that the sale process was sufficiently reliable to exclude outlier valuations like the twice-the-deal- price figure that the petitioners advanced, and I relied on it to that extent. But I found that the sale process was not sufficiently reliable to rule out a smaller valuation discrepancy. The Delaware Supreme Court reversed, concluding that “the deal price deserved heavy, if not dispositive, weight.”130

Because the holdings in Dell and DFC addressed when a deal price fell within Band 1, they logically did not have implications for when a sale process would be so flawed as to require placing the deal price in Band 4, nor for demarcating the boundary between Bands 4 and 3, or between Bands 3 and 2. Technically, the holdings did not even clearly delineate the border between Bands 2 and 1. The Delaware Supreme Court placed both deal prices into Band 1, but the high court might have believed the sale processes were so good that they fell into an upper register of Band 1, without excluding the possibility that a not-as-good sale process still could generate a deal price warranting Band 1 treatment.

After I issued the Post-Trial Ruling, Vice Chancellor Glasscock issued his decision in AOL.131 He derived sale process characteristics from Dell and declined to give any weight to a sale process that he found was not “Dell Compliant.”132 This outcome suggests to me that he viewed whether a transaction is “Dell Compliant” as demarcating the point within Band 2 at which a trial judge could opt to disregard the deal price.

I obviously did not have the benefit of AOL when reasoning through these issues, but I considered similar questions. After pondering Dell and DFC, those decisions seemed to me to imply that a deal price fell above the point of disregard and should be considered as a valuation indicator if the transaction did not involve a controlling stockholder and was otherwise at arm’s length. This is a lower standard than the “Dell Compliant” concept.

I derived my lower test from a confluence of factors, including the following: • In both Dell and DFC, the Delaware Supreme Court linked the purpose of an appraisal to whether the transaction involved a third-party buyer.

o “[T]he purpose of an appraisal . . . is to make sure that [the petitioners] receive fair compensation for their shares in the sense that it reflects what they deserve to receive based on what would fairly be given to them in an arm’s-length transaction.”133 o Fair value for purposes of appraisal “means a price that is one that a reasonable seller, under all of the circumstances, would regard as within a range of fair value; one that such a seller could reasonably accept.”134

o “[T]he key inquiry [in an appraisal] is whether the dissenters got fair value and were not exploited.”135 • In both cases, the Delaware Supreme Court seemed to discount the importance of considering whether a different or more open sale process might have generated a higher value.

o “[T]he purpose of an appraisal is not to make sure that the petitioners get the highest conceivable value that might have been procured had every domino fallen out of the company’s way . . . .”136

o “[F]air value is just that, ‘fair.’ It does not mean the highest possible price that a company might have sold for had Warren Buffett negotiated for it on his best day and the Lenape who sold Manhattan on their worst.”137 o “To be sure, ‘fair value’ does not equal ‘best value.’”138

o “The issue in an appraisal is not whether a negotiator has extracted the highest possible bid.”139 • The Delaware Supreme Court placed the Dell transaction in Band 4 even though the transaction was a management buy-out in which Michael Dell, the eponymous founder, CEO, and largest blockholder, was a net buyer of shares. • In Dell, the Delaware Supreme Court rejected as a matter of law the possibility that a sale process involving homogenous bidders operating within the confines of a leveraged buy-out model could fall short of the valuation that would be placed on the entity by a diversified group of public owners. Based on these factors, I concluded that although the sale process in Aruba had flaws, the deal price warranted consideration as a reliable valuation indicator.140

My assessment of the Aruba sale process in light of Dell and DFC meant that I had two reliable indications of value: the unaffected market price and the deal price. At that point, I had to determine how to weigh, choose between, or otherwise evaluate the two indications. I have already described the thought process that led me to select the unaffected market price as the most reliable indicator of fair value.

I thus submit that the Post-Trial Ruling resulted from my efforts to reason through the Dell and DFC decisions and apply them to the facts presented. That said, I cannot fault the petitioners for inferring some frustration on my part. Most notably, at one point in the Post-Trial Ruling, I included a footnote detailing the record evidence that I relied on when rendering my factual finding in Dell about the existence of a valuation gap.141 Having re- read this language in light of the Reargument Motion, I understand how it could sound petulant.

I did not include that footnote gratuitously. Rather, I included it to emphasize why what I regarded as the far less extensive and persuasive evidence presented in this case would not be sufficient to support a factual finding in the petitioners’ favor. In the face of more extensive evidence in Dell, the Delaware Supreme Court had concluded that “[t]he record before us provides no rational, factual basis for such a ‘valuation gap’” 142 and that “[t]here is also no evidence in the record that investors were ‘myopic’ or shortsighted.”143 As I noted in the Post-Trial Ruling, these holdings by the high court demonstrated that the justices regarded the comparatively more extensive showing in Dell as “the equivalent of no evidence at all.”144

The Delaware Supreme Court reversed or criticized many other aspects of my trial level rulings in Dell. I did not use the Post-Trial Ruling as a platform for engaging in debate on any of those points. The footnote regarding the evidentiary basis for my finding in Dell was relevant to and supported my decision not to rely on weaker evidence in the Post-Trial Ruling. Nevertheless, given how it evidently came across, I should have phrased that footnote differently. If the Reargument Motion is a guide, the footnote missed its intended mark and detracted from the reasoning in the Post-Trial Ruling. That is a helpful lesson, but I do not believe that the misimpression I inadvertently created warrants granting reargument.

2. Judicial Oath Breaking

The petitioners also argue that I could not have issued the Post-Trial Ruling in good faith without violating my oath as a judge. They assert that even if I believed in good faith that I was properly applying the teachings of Dell and DFC and that those decisions authorized a trial court to rely exclusively on the unaffected market price, I still should not have accepted that outcome because of my “oath to Delaware to uphold the Delaware Constitution, which creates three branches of government, including the legislature.”145 The petitioners claim that the Post-Trial Ruling somehow violated that oath because using the unaffected market price as an indicator of fair value would mean, as a practical matter, “that there can never be an appraisal for a public company receiving a premium offer, regardless of the size of that premium”146 and would “eliminate[] the statutory right to appraisal provided by the General Assembly in the context of a publicly traded company.”147

I do not agree that my reading of Dell and DFC means “that there can never be an appraisal for a public company receiving a premium offer, regardless of the size of that premium.”148 The common law develops incrementally, case by case. As the Post-Trial Ruling noted, “[p]erhaps future appraisal litigants will retain experts on market efficiency, as is common in federal securities actions, and maybe future appraisal decisions will consider subtler aspects of the efficient capital markets hypothesis.”149 Depending on the facts and the persuasiveness of the experts, future petitioners might demonstrate that the trading price is not a reliable indicator of value. Or perhaps future petitioners will demonstrate the existence of information that was unknown to the market and argue for a specific valuation impact. Doubtless other possibilities are possible.

Equally important, it does not violate the Delaware Constitution for the Delaware Supreme Court to interpret the appraisal statute, even if it refines the litigation target zone for petitioners in appraisal proceedings. “In our constitutional system, this Court’s role is to interpret the statutory language that the General Assembly actually adopts, even if unclear and explain what we ascertain to be the legislative intent without rewriting the statute to fit a particular policy position.”150 “[T]he Constitution invests the Judiciary, not the Legislature, with the final power to construe the law.”151 The interpretation of statutory text is “one of the Judiciary’s characteristic roles.”152 The Delaware courts play a particularly significant role in the corporate arena,153 where historically the judiciary, rather than the General Assembly, has taken the lead.154

For nearly seventy years, the Delaware Supreme Court has spoken authoritatively on the standard for value under the appraisal statute and the weight to be given various types of evidence within that valuation framework. The Delaware Supreme Court first addressed the governing standard of value in Battye,155 then again in Weinberger,156 and subsequently in decisions like Cavalier Oil,157 Rapid-American,158 and Technicolor II.159 The high court has now continued its interpretive role in Dell and DFC.

A trial judge’s oath is not a license to disregard the Delaware Supreme Court’s rulings. DFC and Dell reflect authoritative statements of appraisal law. For purposes of the separation of powers, if the high court has moved in a direction contrary to the General Assembly’s liking, the General Assembly can amend the appraisal statute. The dynamic interplay among the constitutional branches of government fulfills, rather than contravenes, the constitutional scheme.

II. CONCLUSION

The Reargument Motion is denied. The parties shall cooperate in preparing a final order that will bring this case to conclusion at the trial court level.