Forum Home Page see Broadridge note below]

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)

 

Misleading Reports of Appraisal Rights Suitability for Funds

Easily confirmed viability

Timing expectations

The legal officer of a major fund manager told me this week that they had decided to abandon their plans to seek appraisal rights on a very significant holding of Dell stock because someone who seemed to be associated with the Dell Valuation Trust claimed that its securities lawyers had said the required liquidity could not be established. He was misinformed.

Similar confusion has been reported by other fund managers.

Easily confirmed viability

Liquidity can in fact be established, and any lawyer familiar with securities regulation should be able to assure you of this. The plan that has been developed for the Dell situation – with law firms respected for their expertise in the relevant aspects of both securities regulation and appraisal rights, it should be noted – simply follows the conventional model used for a wide range of publicly traded asset-backed investments:

(a)    The Dell Valuation Trust has been established as an independent entity to (i) manage the administration of appraisal rights for multiple participants and (ii) provide reliable reporting to decision-makers.[1] This is the same function that is provided by servicing agents for everything from mortgage funds to commodity pools. It is not novel, and adaptations to particular asset requirements are routine.

(b)   An unaffiliated fund is expected to offer all holders of Trust-managed appraisal rights the opportunity to sell or exchange their interests for the fund’s properly registered public securities.[2] This, too, is a routine practice.

If you do not have immediate access to a securities lawyer to answer any questions you may have about this, I will be pleased to arrange a conference call with appropriate experts.

Timing expectations

A valid concern for fund managers who require liquidity or market pricing is the time that may be required to complete a registration process for public trading. This could take as much as four or even six months, possibly leaving two or three months after the “60 day option” period during which pricing would be defined only by private trading. But since the Trust’s independent management of the appraisal rights should support a reasonably efficient private market, nobody so far has considered it worthwhile to initiate a registration process prior to the proposed buyout’s official approval at the special meeting, which is now scheduled to take place two weeks from now on September 12.

These are our assumptions for the current plan’s liquidity phases:

 

Duration

Pricing Reference

Phase I

From vote until 60 days after the effective date of merger

Expectations of timing generally in 3 to 5 month range, but could be anything from 2 to 6 months; effective date of merger depends on regulatory approvals

If market trading does not provide satisfactory references, pricing can be based on the $13.75 offer price that remains available until the end of the “60 day option” period[3]

Phase II

From the end of Phase I until the start of Phase III

Allow for 1 to 3 months between end of Phase I and completion of registration to start Phase III, but could be from  0 to 4 months

Some market pricing based on private trading, but no assurance of “Level 1” standards

Phase III

Starting upon completion of registration and public trading

Allow 4 to 6 months from voting date for completion of registration process, though could be less

Public trading at “Level 1” standards

Questions about this, and especially about the “Phase II” period of reliance on private market trading, will be welcomed.

We also need to know as soon as possible about any other questions concerning our plans to support investor interests. The Forum has devoted considerable attention to understanding and accommodating a wide range of objectives for the practical use of appraisal rights since the need for liquidity was addressed in a 2005 program,[4] but there will always be new questions and adaptation opportunities. You should assume, as I do, that any issue you raise will fall into one of two possible categories: understandings that need to be clarified or plans that need to be further refined. And for Dell investors, both need to be addressed now, before the September 12 vote.

GL – August 29, 2013

Gary Lutin

Chairman, The Shareholder Forum

575 Madison Avenue, New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com


 

[2] The Trust will also support alternative forms of market-making offers that may be properly presented in accordance with securities laws to accommodate the interests of some or all holders of its managed appraisal rights. As indicated in the section of an earlier Forum report referenced in the previous footnote, each Trust participant will be able to make completely independent decisions about any offer, including offers to sell or settle.

 

 

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.