T. Rowe Price Shares Ineligible for Appraisal, Court Rules

Tom McParland, Delaware Business Court Insider

May 18, 2016
 

Shares belonging to T. Rowe Price & Associates, one of Dell's largest investors, will not be part of a massive appraisal action arising out of Dell's $25 billion going-private merger, the Court of Chancery ruled last week.

In In re Appraisal of Dell, T. Rowe Price had argued its shares were eligible for appraisal, even though a technical glitch caused the shares to be voted in favor of the deal. Under Delaware law, shares are only eligible for appraisal if the record holder did not support or vote in favor of the transaction.

In a detailed 70-page opinion, Vice Chancellor J. Travis Laster found the investment company was not the holder of record. A complex legal web vested the actual rights to Cede & Co., a subsidiary of Depository Trust Co. that processes transfers of stock certificates.

Though T. Rowe Price vociferously opposed the merger, its computerized voting system sent the wrong instructions to proxy advisory firm Institutional Shareholder Services, which then passed along the directives to 14 T. Rowe Price-sponsored mutual funds, telling them to approve the deal.

The firm had argued that it should not be punished for the unfortunate mistake and asked the court to consider its actual intent, but Dell pushed back, saying that Cede's vote precluded T. Rowe Price from satisfying Delaware's dissenter requirement.

On May 11, Laster acknowledged that an error had occurred, but he was unapologetic in rejecting T. Rowe Price's argument for appraisal.

"When an investor elects to use intermediaries, the investor assumes the risk that the intermediaries will err or otherwise fail to act in accordance with the investor's wishes. That general rule applies to the appraisal statute," he said.

"By choosing to rely on ISS to transmit its voting instructions, T. Rowe accepted the risk that ISS might transmit voting instructions inconsistent with T. Rowe's true intentions."

The decision will likely impact how much Dell will have to pay out to dissenting stockholders if Laster finds that the value of Dell's stock was higher than the $13.75-per-share deal price. At trial in October, petitioners argued that the actual value was more than twice that amount.

Laster's decision in the underlying appraisal action is still pending.

In his opinion, Laster distinguished the Dell case from a trio of recent decisions involving appraisal arbitrage where the Chancery Court waived the requirement that a petitioner bear the burden of proving that a record holder had not voted the shares eligible for appraisal in favor of the merger giving rise to appraisal rights.

In those decisions—In re Appraisal of Ancestry.com, Merion Capital LP v. BMC Software and In re Appraisal of Transkaryotic Therapies—there was no evidence of how the shares were voted. And Laster said following that approach in the instant case would lead to the "absurd result" of allowing a nondissenter to pursue dissenters' rights.

"If a court cannot examine evidence regarding how Cede actually voted, then the combination of that evidentiary limitation and the record holder requirement will permit an appraisal petitioner who holds in street name to give instructions to vote its shares in favor of a merger, have those instructions carried out by the record holder, and then nevertheless seek an appraisal for the very same shares, as long as there were sufficient shares that Cede had not voted in favor of the merger to cover the appraisal class," he said.

In this case, however, Dell proved that Cede voted T. Rowe Price's shares in favor of the merger, preventing T. Rowe Price from meeting the dissenter requirement and barring the shares from being appraised.

T. Rowe Price and the petitioners were represented by Stuart M. Grant of Grant & Eisenhofer. Dell was represented by Gregory P. Williams of Richards, Layton & Finger and a team of attorneys from Alston & Bird in Los Angeles.

The attorneys did not immediately respond to calls seeking comment on the case.

Tom McParland can be contacted at 215-557-2485 or at tmcparland@alm.com.