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The Shareholder Forumtm

special project of the public interest program for

Fair Investor Access

Supporting investor interests in

appraisal rights for intrinsic value realization

in the buyout of

Dell Inc.

For related issues, see programs for

Appraisal Rights Investments

Fair Investor Access

Project Status

Forum participants were encouraged to consider appraisal rights in June 2013 as a means of realizing the same long term intrinsic value that the company's founder and private equity partner sought in an opportunistic market-priced buyout, and legal research of court valuation standards was commissioned to support the required investment decisions.

The buyout transaction became effective on October 28, 2013 at an offer price of $13.75 per share, and the appraisal case was initiated on October 29, 2013, by the Forum's representative petitioner, Cavan Partners, LP. The Delaware Chancery Court issued its decision on May 31, 2016, establishing the intrinsic fair value of Dell shares at the effective date as $17.62 per share, approximately 28.1% more than the offer price, with definitive legal explanations confirming the foundations of Shareholder Forum support for appraisal rights.

Each of the Dell shareholders who chose to rely upon the Forum's support satisfied the procedural requirements to be eligible for payment of the $17.62 fair value, plus interest on that amount compounding since the effective date at 5% above the Federal Reserve discount rate.

Note: On December 14, 2017, the Delaware Supreme Court reversed and remanded the decision above, encouraging reliance upon market pricing of the transaction as a determination of "fair value." The Forum accordingly reported that it would resume support of marketplace processes instead of judicial appraisal for the realization of intrinsic value in opportunistically priced but carefully negotiated buyouts.

 

 

For Dell's preliminary proxy disclosures referenced in the article below, see

 

Source: Financial Times Lex, April 2, 2013 commentary

FINANCIAL TIMES

ft.com/lex

  

April 2, 2013 4:09 pm

Dell: computing the price

Investment bankers ignore precedent transaction multiples

When buying a house, computing the sale price can be as simple as discovering what other properties on the street fetched. What did someone else actually spend? Likewise, when selling a public company, precedent transaction multiples can be equally compelling. So it is surprising to see that JPMorgan and Evercore Partners, the financial advisers to Dell’s special committee, did not include any precedent multiples in their fairness opinion memos.

These memos usually include several valuation methodologies. But precedent transaction analysis can be crucial as it reflects buyers paying extra for a control premium. Trading multiples and discounted cash flow are standalone valuations and will not account for control.

The investment bankers could have judged that the relevant transactions (for example, Hewlett-Packard/Compaq, Lenovo/IBM, Acer/Gateway, HP/Palm) are inappropriate comparisons because those involved large strategic buyers who could pay more due to synergies or that the target companies were in a different strategic position than Dell is in currently. These are reasonable points. However, the bankers were still able to include (and caveat) comparable companies for trading multiples analysis and previous transactions for historical premiums paid. (In fact, it seems that premiums in most other transactions would not be for stocks in steady decline as is the case for Dell.)

The bankers could have simply offered similar caveats when including previous deals. Of course, the more cynical interpretation is that these multiples would have been unhelpful in building the case for $13.65/share. And with a 270-page proxy there are plenty of other things for shareholders to chew on.

Email the Lex team in confidence at lex@ft.com

 

 

© The Financial Times Ltd 2013
 

This project was conducted as part of the Shareholder Forum's public interest  program for "Fair Investor Access," which is open free of charge to anyone concerned with investor interests in the development of marketplace standards for expanded access to information for securities valuation and shareholder voting decisions. As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

The management of Dell Inc. declined the Forum's invitation to provide leadership of this project, but was encouraged to collaborate in its progress to assure cost-efficient, timely delivery of information relevant to investor decisions. As the project evolved, those information requirements were ultimately satisfied in the context of an appraisal proceeding.

Inquiries about this project and requests to be included in its distribution list may be addressed to dell@shareholderforum.com.

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