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Enabling Use of Appraisal Rights to Choose Dell’s Long Term Value
Reservation of appraisal rights
Investor reporting
Marketability of investment interests
The recently initiated project to address Dell shareholder interests
in appraisal rights
has identified several requirements to make this theoretically
sensible alternative a practical choice for investors. As summarized
below, we are developing plans for processes that should allow any
investor, including regulated funds concerned with “Level 1”
qualification or index tracking, to efficiently acquire and administer
shares of Dell’s long term investment value.
Please offer your advice of any interests that should be considered to
guide our refinement of details during the next week.
Reservation of appraisal rights
Requirement:
Prior to the date of voting, a stockholder of record must present the
company with a formal written demand for appraisal. For beneficial
(“Street name”) shareholders, someone must instruct the holder’s
broker or custodian to arrange for the registered depository to
present a legally compliant demand relating to the beneficial holder’s
shares.
This seemingly simple communication should be as easy as checking the
boxes in proxy voting, but the infrequent need for appraisal demands
has not stimulated anyone’s development of standardized forms and
processes. It therefore usually involves considerable time and effort
to find out who needs to be authorized to write letters and coordinate
custodial arrangements, and to be sure that they do it.
Solution:
Working with Delaware counsel, we are developing processes and
staffing to manage the delivery of the required demand for appraisal
on behalf of any Dell shareholder, either beneficial or registered.
All that will be required of the investor is filling out a few
identification spaces in a simple authorization form. This support
should be operational by the end of next week, in time to meet
deadlines for the scheduled July 18 voting date.
Benefit:
Any Dell shareholder with record-date voting rights will be able to
conveniently reserve rights to appraisal, establishing what is
essentially a 60-day post-closing option to choose between the
appraisal rights or the offer’s cash payment of $13.65.
Investor reporting
Requirement:
Since the provisions for appraisal rights were developed long before
the existence of the SEC and modern expectations of reporting for
“public” securities, and in a time when investors expected to wait
only a few months for a court to decide the value, there is nothing in
the law addressing the need for reporting to investors. Today, of
course, responsible investment management requires not only informed
decisions about the choice between appraisal rights and an offer
price, but also continuing monitoring and evaluation of the investor’s
interest in appraisal rights.
Solution:
The Forum will be organizing a “Review Panel” of legal and valuation
experts selected by appraisal right investors. Panel members will
confer regularly with the attorneys responsible for the conduct of the
appraisal proceeding, have access to confidential information, and be
able to ask questions and request research. The Panel’s staff will
publish reports quarterly and in relation to any major developments,
and will include statements provided by any Panel members who wish to
present comments or views.
Benefit:
Investors in Dell appraisal rights will have very effective access to
information on which decisions can be made, and will be able to
delegate their own trusted experts to examine their interests.
Marketability of investment interests
Requirement:
Just as there was no need to address investor reporting in the pre-SEC
days when appraisal rights were defined, the law does not include any
provisions addressing the marketability requirements of modern
investors. This is especially important for today’s regulated fund
managers, many of which lack authority to hold illiquid investments or
need to satisfy standards for market valuation of assets even if they
have no concern about liquidity.
Solution:
We are currently exploring SEC registration of interests in the
appraisal rights to allow their public trading. This obvious solution
had been identified when Forum participants considered appraisal
alternatives in the 2005 Providian transaction,
but it was too late to plan the fairly complicated arrangements for
that situation. For the Dell situation, the effort is clearly
justified and we should be able to report procedural expectations by
next week.
Benefit:
Assuming a practical path to the benefits of SEC registration, all
types of regulated and unregulated investors will be able to consider
interests in appraisal rights based on their analysis of Dell’s long
term value as a going concern, without the handicap of illiquidity.
♦♦♦
More specific plans, including dates, will be reported by the end of
next week.
Our objective is to support the interests of investors who want the
same thing that Michael Dell and Silver Lake are seeking in their
proposed acquisition: the long term value of the Dell enterprise,
which everyone apparently agrees is greater than the price set by
current market bids. Appraisal rights were designed for exactly this
purpose, and we will welcome your advice of what is needed to make
them work for you.
GL – June 14, 2013
Gary Lutin
Chairman, The Shareholder Forum
575 Madison Avenue, New York, New York 10022
Tel: 212-605-0335
Email:
gl@shareholderforum.com
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