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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.

Source: Barron's, April 27, 2013 article

Feature | SATURDAY, APRIL 27, 2013

Dell: Now What?

By ANDREW BARY | MORE ARTICLES BY AUTHOR

Blackstone's decision to step back from a Dell was a setback for investors. Why the shares are still attractive.

Michael Dell scored a victory in his quest to buy his namesake company when Blackstone Group recently opted not to make a counterbid for Dell (ticker: DELL). But his $13.65-a-share offer looks inadequate and may not get shareholder approval, given opposition from big holders like Southeastern Asset Management, Carl Icahn, and T. Rowe Price.

Icahn, who submitted a preliminary offer for a recapitalization of Dell last month, is the wild card. It's unclear whether he will follow through with a formal offer, which would involve a tender for as much as 58% of Dell shares at $15 apiece.

Wall Street is putting low odds on a formal Icahn bid; Dell shares have dropped about 60 cents to $13.35 since the Blackstone news and are trading below the $13.65 offer from Michael Dell and Silver Lake Partners. The view on the Street seems to be that if the deal dies, Dell shares will head lower, perhaps as low as $10 or $11.

[image]

Recent Price	$13.35
52-Week Change	-19%
2014E EPS	$1.55
2014E P/E	8.6
Net Cash per Share	$3.50
Market Value (bil)	$23.4
Largest Holder	Michael Dell, 16%
E=Estimate. Fiscal year ends in Jan. Sources: FactSet; Thomson Reuters

Dell shares now look appealing because investors stand to make a small profit if the Michael Dell-led offer gets approved. And the alternatives to that offer—which would allow Dell to remain a public company—could provide significant value to shareholders, since Icahn and Southeastern value Dell at more than $20 per share. Alternatives include an Icahn tender offer, or the billionaire investor's original idea in early March for a $9-a-share special dividend.

Barron's has been critical of the Michael Dell proposal since before it was unveiled in early February, including a recent cover story ("Michael Dell's Folly," April 1).

Dell trades for less than nine times projected profit of $1.55 a share in its fiscal year ending in January 2014, and its price/earnings ratio is less than seven, excluding its sizable net cash position of $3.50 a share. Recent strength in stocks like Microsoft, (MSFT), Intel (INTC) and disk-drive maker Western Digital (WDC) suggests the PC may not be dead.

The Bottom Line

Investors stand to make a small profit if the Michael Dell-led offer is approved. Alternatives, such as a Carl Icahn offer, could prove much more lucrative.

In an April 9 letter to the special committee of Dell's board, Southeastern went through all that is wrong with the board's decision to accept Michael Dell's lowball offer, noting that the $13.65 price gives little consideration to Dell's strong balance sheet and valuable software and services businesses. "The proxy statement does not contain any sound reasoning for why, at this stage in the transformation, the company needs to be taken private," Southeastern wrote, adding that only "cursory" consideration had been given to a leveraged recap or special dividend that would provide significant value to holders while allowing many or all to remain investors.

The Dell buyout faces a high hurdle because it requires approval of a majority of Dell holders, excluding Michael Dell, who owns about 16%. Given the opposition, there's a good chance the deal dies even if an Icahn proposal doesn't materialize. That would be welcome news for Dell investors, who could then benefit from alternatives that offer immediate and long-term benefits that probably far exceed $13.65 a share.

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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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.