HPQ HP Inc

By Liz Hoffman 

A Delaware judge on Friday refused to approve a settlement of shareholder lawsuit stemming from Hewlett-Packard Co.'s $2.7 billion purchase of Aruba Networks, a signal that the country's most influential corporate court is taking a tougher stance against merger litigation.

Vice Chancellor J. Travis Laster said the proposed settlement offered little of value to Aruba's shareholders, on whose behalf the case was filed. The agreement called for H-P to disclose additional information about the sale process and pay the plaintiffs' lawyers a fee of $387,500.

Such "disclosure-only" settlements are now the norm in the litigation that follows nearly every corporate merger. Mr. Laster and others on the Delaware Court of Chancery, where most such cases are heard, have become increasingly critical of these pacts. Mr. Laster on Friday signaled that his patience with such settlements has run out.

"We've reached a point where have to acknowledge that settlement for disclosures only has created a real, systemic problem," he said. "We've all talked about it for a couple years. When you get the sue-on-every-deal phenomenon, it is a problem."

He said the "formulaic" path of M&A lawsuits had created a "misshapen legal regime" that doesn't benefit shareholders.

Mr. Laster sharply criticized the plaintiffs' case in Aruba as thin and said they didn't do enough investigating to determine whether there were actual problems with the transaction. He dismissed the case on the grounds that the lawyers didn't adequately represent shareholders' interests.

A lawyer for the plaintiffs declined to comment.

H-P agreed to buy Aruba, a provider of network software, in March for $24.67 a share, a 34% premium to the stock's closing price the day before the deal was announced. Seven lawsuits were ultimately filed, alleging the price was unfair and that process wasn't robust enough. The parties reached a settlement in April.

As is typical in such settlements, H-P agreed to release additional details about the deal and pay a fee in exchange for immunity from future lawsuits over the deal. Mr. Laster and others have criticized such releases as "intergalactic," saying they are too broad and can paper over real misconduct that might have been unearthed with a more vigorous investigation.

The proposed disclosures included that H-P offered Aruba Chief Executive Dominic Orr a new employment contract earlier than H-P had said in regulatory filings--a fact Mr. Laster said could have been grounds for a full-fledged lawsuit seeking damages.

Friday's decision doesn't affect a separate lawsuit filed by a group of Aruba shareholders who are seeking a higher price than the $24.67 H-P. That appraisal lawsuit is pending.

Mr. Laster rejected a similar settlement in July stemming from Cobham PLC's purchase of Aeroflex Holding Corp. The same week, another judge in the same court withheld approval of a settlement in litigation over Roche Holding AG's $8.3 billion acquisition of InterMune. In September, a third judge approved a settlement stemming from the private-equity buyout of Riverbed Technology Inc. but put plaintiffs' lawyers and companies on notice that they shouldn't expect him to do so in the future.

A tougher stance on settlements isn't necessarily a win for companies, which, though they often complain about such lawsuits, benefit from easy, relatively inexpensive settlements.

"The historical basis for [settlements] has been the defendants' desire for complete peace," Mr. Laster said Friday. "Just because you want it doesn't mean you get it."

Write to Liz Hoffman at liz.hoffman@wsj.com

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(END) Dow Jones Newswires

October 09, 2015 14:15 ET (18:15 GMT)

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