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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)

 

Reserving Value Realization Alternatives Before the Dell Vote

Securing the essential alternatives

Support of marketability and independent investor control

Dell shareholders who have satisfied the procedural requirements for demanding appraisal of their stock[1] will be able to reserve rights to consider several alternatives for value realization. As summarized below, these include opportunities to sell the rights or to hold them, as well as the widely reported option to drop the rights and accept the offered $13.75 at any time until 60 days after the merger’s effective date.[2]

Securing any or all of the available alternatives will not involve significant burdens. However, what it will require is timely attention prior to the stockholder meeting scheduled for this coming Thursday, September 12.

Securing the essential alternatives

If you have already delivered the required written demand,[3] there should be no additional actions or costs involved in simply reserving the rights. It is necessary only that you not vote in support of the merger – either abstaining or not voting at all may be preferable to a negative vote, so that you will not contribute to a possible defeat of the transaction that creates your opportunity for “fair value” realization – and that you continue ownership of the relevant shares until the effective date of the merger.

Perfecting the right to appraisal will allow you to consider these essential alternatives:

►   Obtain the “fair value” appraised by the court,[4] plus compounded interest at 5% over the Federal Reserve discount rate

►   Sell or settle the appraisal rights, either during the “60 day option period” or later

►   Withdraw the demand and take the $13.75 offer price at any time until 60 days after the effective date

No commitments to any course, or to any costs, should be required to keep all of these options open until 60 days after the effective date.

Support of marketability and independent investor control

Investors concerned with assurances of marketability, monitoring, or the ability to manage their appraisal rights independently of other investors may want to reserve the required support of those interests for optional future use.

As previously reported,[5] owners of stock for which appraisal has been demanded can ask the Dell Valuation Trust to determine the eligibility of those rights for Trust management. If the Trust’s legal counsel is satisfied with the documentation, the Trust will provide a certification of eligibility and a commitment to accept responsibility for managing the anticipated appraisal rights, if and as the owner or its assignee decides to authorize the Trust. This is intended to assure the owner, and any prospective assignee, of the availability of support for a marketable investment in appraisal rights, without any obligation of the owner to proceed with it.

Trust certification or alternative means of similar support can significantly enhance the value of appraisal rights for investors who consider these benefits relevant:

■

 The rights can be held by a regulated fund manager that requires liquidity and administrative efficiency.
■ The owner of the rights will not be under pressure to sell or settle.
■ Prospective assignees will know that the owner is not under pressure to sell or settle.
■ The owner and prospective assignees will be able to rely upon delegate reporting of information required for investor decisions.
■ The owner can make investment decisions independently of other appraisal rights investors.

Questions about these alternatives, or about participation in the program for investors who anticipate regular attention to appraisal rights, will be welcomed.

GL – September 6, 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 Dell’s instructions, referring to the section titled “Rights of Appraisal” beginning on page 180 of the company’s definitive proxy statement dated May 30, 2013.

[3] If you have not yet initiated the demand process, it is probably too late for you to secure appraisal rights for your stock. Assuming you are a beneficial rather than direct owner of shares, it is unlikely that your custodian and Depository Trust Company can be motivated to complete their administrative processes in less than a week.

[4] A report on Delaware standards for “fair value” will be distributed to Forum participants early next week.

 

 

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.