ACL Netherlands BV & Ors v Jeremy Vaughan Sandelson & Anor

In assessing loss under FSMA, the court must construct the counterfactual in which accurate information was published and informed the market, the bidder and shareholders. A DCF valuation is a guide to rational value parameters, not a mechanical answer to the price which would have been negotiated. That price is a fact-sensitive assessment of the parties’ expectations, bargaining strength, synergies and negotiating dynamics. Accrual-based revenue and profit figures must be considered alongside billings, deferred revenue and cash-flow capacity. The counterfactual must not include a discount for disappointment caused by comparison with the represented position. Where statutory and common-law claims concern different parcels of shares acquired in one takeover, inconsistent transaction and no-transaction counterfactuals are impermissible.

The judgment determined quantum following the court’s liability judgment in ACL Netherlands BV & Ors v Jeremy Vaughan Sandelson & Anor, [2022] EWHC 1178 (Ch). HP and related claimants had substantially succeeded on claims concerning misleading published information, deceit and misrepresentation, and breaches of duty arising from Autonomy’s accounting practices and transactions.

The court assessed the FSMA loss, the losses relating to shares held by the individual defendants, direct losses arising from hardware, VAR, reciprocal and hosting transactions, and the appropriate currency of loss. The central issues were the construction of the FSMA counterfactual, the valuation of Autonomy and anticipated synergies, the hypothetical bid price, and whether inconsistent counterfactuals could apply to different causes of action arising from the same acquisition.

1. FSMA counterfactual and valuation. The relevant counterfactual assumed that accurate information had always been published and had informed the market, shareholders and HP’s Deal Model. Loss was the difference between the actual acquisition price and the price HP would have agreed in that counterfactual. A DCF valuation was an important range-finding tool, but value and price were not synonymous. The ultimate bid price was a question of fact involving standalone value, share price, anticipated synergies, the parties’ objectives and bargaining dynamics.
2. Accounting and cash flow. Both accrual-based accounting measures and cash-flow indicators had to be considered. Historical cash receipts alone did not reliably predict future free cash flows, particularly where upfront receipts represented deferred earnings. Conversely, deferred revenue could not be treated as earned revenue or as a recurring revenue stream without considering the corresponding future service obligations and discounted future charges.
3. Principal valuation findings. The Bank of America transaction had a true value of $9.6 million, to be recognised over five years as IDOL Cloud revenue. Costs and losses associated with the impugned VAR and reciprocal transactions were excluded from the counterfactual valuation to avoid an economically unjustified windfall. Autonomy’s share price could not be derived mechanically from its DCF value. Applying a broad axe, the court assessed the counterfactual 30-day average share price at £13.50–£15.50 and the agreed counterfactual bid price at £23 per share.
4. Common-law claims. The claimants could not rely on a transaction counterfactual for the FSMA claim and a no-transaction counterfactual for the individual defendants’ shares. The same acquisition of the entire issued share capital required a consistent factual premise. The individual-share claims were therefore assessed on the same transaction basis and without a separate stain or synergy discount.
5. Outcome. The FSMA loss was assessed at £646,178,248, subject to credit for the Deloitte settlement and further currency submissions. The misrepresentation losses were assessed at £51,698,505. Direct losses were awarded in the amounts determined for the relevant claimant companies, including a broad-brush award of $5 million for the hosting transactions.

This was a further High Court judgment determining quantum after the court’s liability judgment, [2022] EWHC 1178 (Ch), and a subsequent directions judgment, [2023] EWHC 1847 (Ch).