May 18, 2016

‘Voting Mix-Up'Causes T.Rowe to Lose Dell Appraisal Suit

From Corporate Law & Accountability Report

By Michael Greene

May 12 — Several T.Rowe Price & Associates Inc. funds can't proceed on an appraisal lawsuit arising out of Dell Inc.'s 2013 buyout, the Delaware Chancery Court held May 11.

Vice Chancellor J. Travis Laster ruled that the 14 petitioners—T.Rowe Price mutual funds or institutions that relied on T.Rowe to direct the voting of their shares—hadn't complied with the “Dissenter Requirement” of the state's appraisal statute.

Under Delaware law, stockholders that vote in favor of a merger can't seek an appraisal over how much their shares are worth.

Although T.Rowe Price had opposed the deal, the court found evidence in the record showing that a “voting mix-up” caused the petitioners' shares to be voted “for” the merger.

Laster dismissed T.Rowe Price's claims, ruling that the petitioners weren't entitled to more than the merger price. In his detailed ruling, the judge also provided guidance on how the court will examine whether the Dissenter Requirement is met in appraisal proceedings.

Bloomberg BNA, which relied on T.Rowe Price to vote its Dell shares, was a petitioner in the lawsuit.

‘Shifting the Burden.'

The petitioners' shares were held in the name of Depository Trust Co.'s nominee, Cede & Co. In what the court called a “daisy chain of authorizations,” T.Rowe Price had contracted with Institutional Shareholder Services to collect and submit its voting instructions to Broadridge Financial Solutions Inc., who had the power of attorney to execute proxies.

According to the court's decision, T.Rowe Price's instructions to vote against the merger were inadvertently deleted and replaced.

Laster distinguished the case from two 2015 chancery court decisions that found a petitioner had met its initial burden under the Dissenter Requirement by showing that Cede held a sufficient number of shares that weren't voted in favor of the merger to cover the appraisal class (13 CARE 85, 1/9/15).

Laster clarified that after a petitioner has shown that Cede held the requisite number of shares, the company can rebut by showing that Cede actually voted the shares in favor of the merger.

The judge found that unlike the circumstances in the 2015 chancery court decisions, here there was evidence on how Cede had voted the petitioners' shares.

“It simply is not true that it is impossible to determine how Cede voted the shares over which the T. Rowe Petitioners exercised voting authority,” he wrote. “When questions arose about how the shares were voted, T. Rowe, ISS, and Broadridge all acted as if they could identify the shares and how they were voted, and they came to the conclusion that Broadridge voted the shares ‘FOR' the Merger.”

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

For More Information

The opinion is available at 20160511_DelCh-Opinion.pdf.