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.
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
related articles about arrangements for a "stalking horse" and for an
alternative proposal, both published shortly after the column below
about possible objectives of orchestrated negotiations, see
Even losers could emerge
as winners from the
Dell takeover battle.
Blackstone Group, Silver Lake Partners, the Dell board and founder
Michael S. Dell could stand to benefit from the impression of a
hard-fought auction. A Potemkin fight, if that’s what it turns out to be,
just may not help shareholders quite so much.
It’s what Wall Street
calls the optics of the deal. For the buyout firms, a backdrop for the $24
billion Dell sale is an antitrust lawsuit that a judge earlier this month
narrowed but allowed to proceed. Shareholders of acquisition targets from
2003 to 2007 accuse Blackstone, TPG and other
private equity shops of conspiring to drive down prices by agreeing not
to outbid each other.
One potentially damaging
piece of evidence is an e-mail from none other than Blackstone’s president,
Hamiliton E. James Jr. to George Roberts, a co-founder of
Kohlberg Kravis Roberts & Company: “We would much rather work with you
guys than against you. Together we can be unstoppable but in opposition we
can cost each other a lot of money.”
While the Dell deal will
have no direct bearing on the case, Blackstone’s counterbid seems to
undermine such allegations. The 11th-hour offer for the PC maker is a
rarity. Go-shop periods almost never lead to a higher bid. In the context of
helping to shift perceptions about private equity firms being in cahoots,
even Silver Lake might welcome Blackstone’s approach.
New suitors could also
help Dell’s board avoid a J.Crew stigma. In the clothier’s 2010 sale, the
board succumbed to a leveraged buyout hand-stitched by Chief Executive
Millard S. Drexler. After being kept in the dark for more than six weeks
while Mr. Drexler and the lead director’s private equity firm, TPG, were
teaming up on a bid, independent directors used a go-shop period as a
governance fig leaf.
Similarly, if Mr. Dell
winds up working with Blackstone, or even negotiates in good faith with the
firm, he could come out looking better than Mr. Drexler, who only grudgingly
agreed to work with other potential buyers.
Blackstone, or even
Carl C. Icahn, may succeed with their bids, but it’s just as likely all
the maneuvering won’t bring a better deal for Dell investors. Others
involved will at least come away keeping up appearances
Jeffrey Goldfarb is an
assistant editor at Reuters Breakingviews. For more independent commentary
and analysis, visit
breakingviews.com.
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.
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dell@shareholderforum.com.
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in the Forum's
2010 "E-Meetings" program and has since been
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