September 30, 2013 Forum Report: Defining Appraisal Rights Alternatives for Dell’s 60-Day Option Period

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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)

Defining Appraisal Rights Alternatives for Dell’s 60-Day Option Period

Sufficient valuation information for initial decisions

Reporting and administrative requirements of marketable investments

Anyone who has reserved rights to the appraised “fair value” of Dell stock is encouraged to offer advice this week of any interests that should be considered in final plans for the Dell Valuation Trust’s support of your investment.[1]

Administrative arrangements and documentation processes must be initiated this week for any Trust management alternatives that are to be available for investor decisions before the end of the “60-day option period.” If you want to be able to consider an alternative, whether it relates to information reporting or the structural form of your investment interest, we will need to know what is required within a few days.

Sufficient valuation information for initial decisions

It is assumed that currently available information – including particularly last week’s publicly reported views of both the buyout group’s insider[2] and its objective professionals[3] about Dell’s intrinsic value – is sufficient for preliminary investor analysis of the probabilities that Dell’s “fair value” according to Delaware legal standards[4] will exceed the $13.75 offer price.

If you believe any additional valuation information may be relevant to investor decisions before the end of the 60-day option period, please tell us. Advice of information requirements for continuing investor interests in the appraisal process beyond the option period will also be welcomed, of course, but can be addressed after this week.

Reporting and administrative requirements of marketable investments

The previously summarized plans for Review Panel reporting and for administrative support of independent investor decisions can be implemented based on what we have learned since 2005 about the requirements of a broad range of regulated fund managers as well as individual owners of appraisal rights. It should be emphasized, though, that the Trust was designed very deliberately to accommodate custom specifications of its independent investors, and we will welcome opportunities to put this capability to good use.

If you tell us this week what will make an investment in Dell appraisal rights more valuable to you, and possibly also to other investors, we will try to deliver it.

It should be emphasized that we do not expect investors to make commitments to any alternatives now. But you do need to tell us now what alternatives you want to be available for your consideration a couple of months from now.

GL – September 30, 2013

Gary Lutin

Chairman, The Shareholder Forum

575 Madison Avenue, New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com

[1] See “Specifying your private label investment product” in the September 20, 2013 Forum Report: Participation in Planning for Dell Appraisal Rights.

[2] See published interviews in September 24, 2013 Wall Street Journal | All Things Digital: "Many Questions for Michael Dell on Going Private, and What’s Next" and September 25, 2013 Forbes: "Michael Dell, Happy About Taking Dell Private, Says The Chase Is On For Customers".

[3] See September 27, 2013 Wall Street Journal Private Equity Beat: "Silver Lake Focuses on ‘Second or Third Derivatives’ of Tech Trends".

[4] See September 9, 2013, Jeremy D. Anderson, Erin C. E. Battersby and José P. Sierra of Fish & Richardson P.C., memorandum to Dell Valuation Trust: Delaware Appraisal of Fair Value for Standalone Buyouts, and reports of it in the September 10, 2013 Forum Report: Court Rules for Appraisal: Fair Value = Intrinsic Value and September 10, 2013 New York Times DealBook: "Icahn’s Last Chance on Dell".

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.