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.
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 other views of fair
standards for "majority of the minority" voting support, see
Michael S. Dell is seeking a change in
rules that would not count unvoted shares as “no” votes
A seemingly small
concession during the original negotiations over the proposed takeover of
Dell by the company’s founder has come into focus in the increasingly
protracted deal saga.
Last week,
Michael S. Dell and his partner, the investment firm Silver Lake, sought
to change the rules for a shareholder vote on their bid for the company. In
exchange for a small increase in price — about 10 cents a share, to $13.75 a
share — the two have demanded that shares not voted no longer count as “no”
votes.
The two prospective buyers
have a good reason to call for the change. According to recent tallies, of
the roughly 1.1 billion shares that have been cast so far, about 579 million
have been cast in favor, while 563 million have been voted against the deal,
people briefed on the matter said.
That is not enough to win
at the moment, however. According to the current rules set by Dell’s board,
a majority of the company’s 1.476 billion shares eligible to be voted must
be cast in favor of the deal; that number excludes the 16 percent stake that
Mr. Dell holds. So the more than 334 million shares that have not voted yet
are treated as no votes.
Mr. Dell and Silver Lake
are arguing that the current voting rules adopted by a special board
committee set up to evaluate the bid are unnecessarily tough. And with a
significant bloc of shareholders, led by the billionaire
Carl C. Icahn, firmly opposed to the deal, victory is all but impossible
without a change.
Since the prospective
buyers announced their demands last Wednesday, the Dell committee and its
advisers have been considering whether to accede. Though Mr. Dell and Silver
Lake called the slightly sweetened bid their “best and final offer,”
directors are pushing for a bigger price increase, to at least $14 a share,
one of the people briefed on the matter said.
Time is growing short for
a decision, which is expected as soon as Monday. A vote on the deal is
scheduled for Friday after having been postponed twice amid tough opposition
from shareholders.
Mr. Dell and Silver Lake
are in essence trying to take a second whack at an easier voting standard.
The two originally pressed to avoid having nonvoted shares counted as “no”
votes during the original deal talks, people briefed on the matter said. But
the special committee resisted, demanding a higher price before it would
consider changing the rules.
At the time, Mr. Dell and
Silver Lake agreed to drop the demand. But now they have changed their
minds, arguing it to be an impossibly high bar to clear.
Not helping matters is the
fact that the rules governing shareholder votes are murky on the issue,
legal experts said. Lawrence A. Hamermesh, a professor at the Widener
University School of Law, said that Delaware law, which would apply here,
simply calls for a majority of a company’s public shares outstanding to be
cast in favor of a deal.
“There aren’t any very
clear rules, and it generally hasn’t mattered,” Professor Hamermesh said.
“You don’t really see it coming up often.”
Much of what has been used
in real-life shareholder matters has been tailored more to helping votes
stand up to legal challenges. Leonard Chazen, a lawyer at the firm Covington
& Burling who is not involved in the deal, said that in the Dell situation,
the board appeared to have adopted a standard that was excessive.
“When you’re treating the
nonvotes as ‘no’ votes here, that’s going too far, I think,” he said.
But Mr. Icahn and
Southeastern Asset Management, who together own more than a 12.5 percent
stake, have sharply criticized the effort to change the rules.
“Are they serious?” the
two said in a statement last week. “How is it fair to change the rules at
the end of the game, particularly when they and their teams of lawyers
established the rules?”
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
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their private reference, and permission has not
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Gary Lutin, as chairman of the Shareholder
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in the Forum's
2010 "E-Meetings" program and has since been
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