March 15, 2013 Forum Report: Inviting Advice on Plan for Independent Peer Review of Dell Valuation

Forum Home Page see Broadridge note below]

The Shareholder Forum^tm

special project of the public interest program for

For related issues, see programs for

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 a printable copy of this report, click here.

Forum Report: Fair Investor Access (Dell Valuation Project)

Inviting Advice on Plan for Independent Peer Review of Dell Valuation

The process that the Shareholder Forum had proposed for an “independent, peer reviewed valuation report for the benefit of shareholders” of Dell had been developed for projects led by a company’s management,[1] and we therefore need to consider some practical adaptations for the current situation in which Dell’s management may not be supporting the process.[2] Following is a summary of preliminary plans that are being considered for the essential review and reporting by the Forum’s independent “Peer Reviewers,” without depending on the company for anything other than compliance with laws providing for investor access to relevant information:

Independent review of valuation reports prepared by the company’s advisors: Instead of engaging our own expert for an additional valuation report, considerable time and expense can be saved by simply conducting the independent peer review of the valuation reports that have already been provided by experts engaged to advise Dell’s Special Committee (JP Morgan) and Dell Inc. (Goldman Sachs).[3] This will also avoid the distraction of arguments about the relative merits of competing valuation reports.
Purpose of Peer Reviewer comments: Each Peer Reviewer will be invited to offer professional comments on the valuation reports provided for the benefit of the company and its board committee, presenting any questions or issues the Peer Reviewer thinks should be considered by investors in their decisions about the company’s proposal. Focusing on the interests of investors who want to make their own informed decisions, Peer Reviewers should not be expected to advocate a position either for or against the proposed transaction.
Representation of diverse investor interests: Each Peer Reviewer will be encouraged to understand and represent the interests of a specific category of investors – such as public pensions, value investing funds, or individuals – in comments that address the particular decision-making criteria of those investors.[4] The Forum will invite investor suggestions of professionally qualified Peer Reviewer candidates to cover a diverse range of perspectives.
Forum access to confidential information: Peer Reviewers will be able to examine any information the company makes available to the Forum, either voluntarily or pursuant to court orders enforcing rights to information that is “reasonably related” to an investor’s consideration of the company’s proposal.[5] In addition to our initial demands for the valuation reports provided by the company’s advisors and all information made available to the advisors for their valuations,[6] the Forum may make supplemental demands to accommodate Peer Reviewer requests. Peer Reviewers will of course be required to accept a confidentiality agreement that prohibits their disclosure of private information, particularly in the comments they provide for the Forum’s public reporting.
Integrity of Peer Review communications: To assure confidence in the integrity of the process, a Peer Reviewer will be expected to avoid any communications with Dell and its advisors or with other Peer Reviewers until the Forum has publicly reported the Peer Reviewer’s comments. The Peer Reviewer will provide the Forum with initial comments on a valuation report, and the Forum will then present those comments to the advisor that prepared the valuation report for possible response to be reported back to the Peer Reviewer. When the Peer Reviewer provides the Forum with final comments, the Forum will seek Dell advice of any confidentiality concerns and inform the Peer Reviewer of any issues that must be resolved.
Forum commitment to publicly report comments: The Forum will publicly report and post whatever comments a Peer Reviewer presents, without editing, subject only to the condition that the Peer Reviewer has complied with the Forum’s communication requirements and confidentiality agreement.

Your questions and suggestions will be appreciated to help us refine this process so that we can start selecting Peer Reviewers next week. Assuming the company information will be available in two or three weeks, through either voluntary arrangements or court supervision, we will want the Peer Reviewers to be ready to start so that they can provide comments in time for investor consideration in decisions about Dell’s proposal.

GL – March 15, 2013

Gary Lutin

Chairman, The Shareholder Forum

575 Madison Avenue, New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com

[1] For a summary of what was presented, see February 22, 2013 Forum Report: Progressing with Dell Example of Responsibilities for Investor Information; and for a description of the process, see February 14, 2013, Gary Lutin of The Shareholder Forum: letter with enclosure to Michael S. Dell and Alex J. Mandl of Dell Inc. (3 pages, 110 KB, in PDF format).

[2] See March 13, 2013 Forum Report: Encouraging Dell’s Voluntary Compliance with Investor Rights to Information.

[3] See February 5, 2013 Dell Inc. (as published by Business Wire): "Dell Enters into Agreement to Be Acquired by Michael Dell and Silver Lake."

[4] See February 28, 2013 Forum Report: Range of Dell Investor Information Requirements.

[5] See Delaware General Corporation Law, § 220. Inspection of books and records, which states that “A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder.”

[6] See March 6, 2013 Forum Report: Obtaining the Same Information as Dell’s Advisors.

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.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.