16 Aug 2023 Cases

Compass Lexecon Client Pivotal Software Prevails in Delaware Appraisal Litigation

2 minute read


Court Relies on Analyses of Compass Lexecon Expert Professor Kenneth M. Lehn

On August 14, 2023, Chancellor Kathaleen Saint Jude McCormick of the Delaware Court of Chancery ruled that the fair value of Pivotal Software, Inc. (“Pivotal”) shares was $14.83 per share – less than the $15.00 per share price paid when the firm was acquired by VMWare, Inc. (“VMWare”) in December 2019. The Court’s fair value determination was consistent with the opinion of Compass Lexecon affiliate, Professor Kenneth M. Lehn, who concluded that the fair value of Pivotal was less than the $15 deal price.

The matter, HBK Master Fund, et al. v. Pivotal Software, Inc., involved a stockholder appraisal action stemming from VMWare’s $2.7 billion acquisition of Pivotal, with Pivotal’s stockholders receiving a cash consideration of $15 per share. A group of stockholders (“Petitioners”) dissented from the transaction and demanded appraisal, claiming that the merger consideration substantially undervalued Pivotal and that their shares were worth $20 each.

Professor Lehn testified at trial in July 2022 on behalf of Pivotal that based on the economic evidence, the fair value of Pivotal shares as of the closing of the transaction was below the $15 cash consideration, and that when corrected for certain errors the $20 per share conclusion offered by the Petitioners’ expert was similarly consistent with a fair value less than $15.

Chancellor McCormick ruled that based on Professor Lehn’s discounted cash flow analysis with certain modifications, the fair value of Pivotal stock was $14.91. She further ruled that after incorporating certain corrections identified by Professor Lehn, the Petitioners’ expert’s opinion, based on a comparable company multiples methodology, was $14.75 per share. The Chancellor averaged the two values to yield the final fair value ruling of $14.83 per share.

Professor Lehn was supported by a Compass Lexecon team that included Rahul Sekhar, Robin Stahl, Xanthi Gkougkosi, Mihir Gokhale, Anne Marie Yale, James Libby, Jason Cherry, Heidi Luu, and Zach Novicoff.

We worked with Michael Celio, Colin B. Davis, Laura Kathryn O’Boyle, and Peter M. Wade, of Gibson, Dunn, & Crutcher LLP, and Elena Norman of Young Conaway Stargatt & Taylor LLP who successfully represented Pivotal.

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