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The Shareholder Forumtm

special project of the public interest program for

Fair Investor Access

Supporting investor interests in

appraisal rights for intrinsic value realization

in the buyout of

Dell Inc.

For related issues, see programs for

Appraisal Rights Investments

Fair Investor Access

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.

 

 

For a printable copy of this report, click here.

Forum Report: Fair Investor Access (Dell Valuation Project)

 

Simply Defined Choices for Dell Investors

Four choices

Broader applications

Since Dell has given its shareholders another few days to decide what they want, I’ve been encouraged to present a simplified definition of your practical choices.

The alternatives summarized below are based on remarkably similar discussions with a wide range of Forum participants, including familiar professionals as well as several individual investors who are new to corporate control contests. While focused on the specific Dell situation, the general definition of choices may also be applied to other buyouts we will be addressing.

Four choices

Most investors want one of these alternatives:

A.    $13.65 cash – If you want the “safe” cash offer, your obvious choice is to vote in favor of the proposed transaction.

B.     Fair value option – If you want the appraised fair value alternative to the cash offer price, or at least the right to consider the option, there are two ways to get it. The one supported by the Forum[1] and encouraged by Icahn[2] is to arrange the required delivery of a demand letter to Dell and vote against the transaction (or abstain, or simply not vote). The alternative for those of you who cannot get your demand delivered to Dell by the adjourned Wednesday deadline is to vote in support of the transaction so that others will be able to secure appraisal rights that you can buy.

C.     Proxy fight – To support a proxy fight instead of the more predictable cash or fair value alternatives available from a buyout, you can simply vote against the transaction.

D.    Increased offer price – Although it is probably too late in the Dell game for bluffing, you could theoretically threaten a negative vote to encourage the buyer group’s revision of terms. Of course, your actual vote would ultimately be based on the three real choices above.

These choices need to be considered in the practical context of your particular investing objectives, as well as a realistic understanding of probabilities in a control contest. The Dell contest has been characterized by an exceptional level of rumors and confusion, fueled by a special committee’s unusual efforts at promotion as well as by a champion agitator, and it is important to sort through all the noise to make a rational analysis.

Broader applications

These decision alternatives, and many other lessons from the Dell project, will be applicable to other buyout proposals.

As some of you know, the Forum has begun reviews of other potential appraisal rights opportunities suggested by participants. This has naturally stimulated thinking about ways to organize the process of selecting potential subjects for support, probably using some variation of a workshop or review panel of invited professionals to assure effective identification and consideration of candidates. I will naturally welcome the views of Forum participants who want to benefit from investing in appraisal rights.

It should be emphasized that our development of an ability to support efficient management and marketability of these rights has created a new type of specialized investment, and that all of us who want to profit from it share a common interest in establishing a sound foundation for its broad acceptance. That will require doing everything right, including the selection of sound demonstration cases.

GL – July 20, 2013

Gary Lutin

Chairman, The Shareholder Forum

575 Madison Avenue, New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.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.

Inquiries about this project and requests to be included in its distribution list may be addressed to dell@shareholderforum.com.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

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.