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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: Dell Appraisal Rights

 

Dell Response Confirms Need for Court Clarification of Settlement

Dell has responded to last week’s motion for court clarification of the settlement terms it must offer[1] all claimants with statements defining a settlement that is clearly different from what was orally summarized as a basis for the court’s approval, effectively supporting the need for review of the actual agreement.

This is the response that Dell filed (“Response”):

Instead of providing a copy of the agreement, Dell has presented a new explanation of the settlement as a payment to release rights to appeal only two specified decisions in the case (Response paragraph 5, page 4):

5. The Settling Petitioners had (and have released through the settlement approved by the Court) two potential appeal issues that neither Cavan nor any other petitioner or claimant has, to wit, (1) the claim that the Court erred in its May 11, 2016, opinion, which disqualified certain petitioners from the appraisal remedy based on their shares having been voted in favor of the merger,[footnote reference] and (2) the claim that the Court erred in its May 31, 2016, order denying the Settling Petitioners an "equitable award of interest."

The paragraph then states that these two specified grounds for appeal “have a different value than those belonging to petitioners or claimants who may contend that the continuous ownership decision was incorrect,” and that those grounds for appeal are explicitly excluded from the settlement. In the footnote, Dell further states that there was no reason to settle rights to appeal a continuous ownership decision because the five T Rowe Price petitioners that had been disqualified on that basis had also voted in favor of the merger, and therefore “if petitioners were to succeed on appeal on the continuous ownership issue but not on the voting issue, those petitioners would still be barred from the appraisal remedy.”[2]

Aside from the implausibility of experienced lawyers and an experienced client agreeing to pay $28 million to settle only two particular grounds for appeal rather than all possible grounds for appeal, this October 18 Response definition is clearly inconsistent with the oral summary of a settlement in the June 27 Conference on which the Court based its approval.[3] Counsel for Dell in fact explicitly included the continuous ownership grounds for appeal in his June 27 explanation of the settlement to the Court:

[page 3, identifying the parties to the agreement] It is just the former stockholders who were affected by the continuous ownership decision of last year, and then the voting rights decision.

[pages 4-5] These are shares that were excluded by the continuous ownership decision and/or the voting decision of a few weeks ago. And what we have done is agreed that we will pay those folks in exchange for releases where they release their appeal rights.

…they will get some modicum of interest, and in exchange, they will be releasing their appeal rights with respect to continuous ownership and the voting decision.

Addressing less dramatic inconsistencies, it should be noted that nothing was found anywhere in the transcript of the June 27 Conference suggesting that the agreement of Dell to “pay those folks in exchange for releases where they release their appeal rights” was intended to provide for something as unconventional as limiting those releases to a couple of decisions and allowing the T Rowe Price petitioners to retain rights to appeal all other decisions. And it seems reasonable for us to assume that if there had been any hint of such a provision in the transcript, Dell would have made a point of it in their Response.

However the Court determines what Dell must offer other claimants in this case, we should expect everyone on all sides to benefit from the opportunity this controversy has provided to define needed standards for fair appraisal settlements as an important foundation of long term corporate stock investment.[4]

GL – October 24, 2016

Gary Lutin

Chairman, The Shareholder Forum

575 Madison Avenue, New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com

 

[2] This October 18 Response definition of settlement, for releasing rights to appeal only the two decisions relating to voting and “equitable interest,” provides a foundation for Dell’s arguing in Response paragraph 10 that the settlement would not be relevant even to the three claimants that lost their rights to appraisal of 752,691 shares for the same continuous ownership reasons as the five T Rowe Price petitioners, and in the same July 28, 2015 Order. Dell’s Response does not reconcile this position, however, to the fact that the five T Rowe Price petitioners that were disqualified based on ownership were not in fact among the claimants disqualified based on voting.

[3] See the transcript of the June 27, 2016 Teleconference Regarding Proposed Settlement presented as Affidavit Exhibit 3 on PDF pages 27-49 of the previously referenced October 14, 2016 Motion of Petitioner Cavan.

[4] For views of a disinterested expert, see October 19, 2016, Brett M. McCartney of Morris James published in Delaware Business Court Insider: "Dismissed Dell Appraisal Claimants Settle With Company;"  for broader concerns raised by the Dell decisions based on continuous ownership and voting, see September 29, 2016, J. Travis Laster of the Court of Chancery of the State of Delaware, keynote speech  to the Fall 2016 meeting of the Council of Institutional Investors: "The Block Chain Plunger: Using Technology to Clean Up Proxy Plumbing and Take Back the Vote."

 

 

 

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.