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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

 

Assuring Orderly Progress of the Dell Appraisal Case

Following this week’s report that the lead Petitioners in the Dell appraisal case had voted their shares in favor of the merger,[1] we have reviewed the interests of Forum participants with dissenter rights to appraisal of their Dell investments, as well as the requirements of a Petitioner’s fiduciary responsibilities to manage the appraisal case for the benefit of all claimants. It is our conclusion that claimants cannot have confidence in the existing lead Petitioners’ continuing responsibility for the interests of other claimants, and that other Petitioners should therefore be prepared to assume those responsibilities.

This conclusion was based on (a) the assumption that the existing lead Petitioners would either be dismissed from the case or preoccupied for some time with legal disputes of their eligibility,[2] (b) questions about why the lead Petitioners did not voluntarily disclose the recently reported “discrepancy” in their signed statements about voting, and (c) the likelihood that the court itself may wish to consider alternatives to assure the integrity and judicial efficiency of the proceeding.

To be prepared for more active involvement in managing the case, Cavan Partners, the Petitioner that initiated the Dell appraisal proceedings for Shareholder Forum participants, has engaged Lowenstein Sandler as special counsel for advice on assuring the orderly progress of the Dell appraisal case. The firm’s partner Lawrence M. Rolnick has agreed to assume responsibility for the engagement, assisted by his partner Steven M. Hecht. Both attorneys are recognized for their expertise in Delaware appraisal proceedings, and for their leadership as contributing authors of the respected Appraisal Rights Litigation Blog.

The provisions of this engagement allow for other Petitioners in the Dell case to share the special counsel services, encouraging a collaborative process for the Petitioners to satisfy their fiduciary responsibilities to all the claimants who have legitimate dissenter rights to appraisal. We will be inviting the other Petitioners to consider this alternative, and will of course encourage this or any other form of collaboration to support the orderly progress of this case.

As always, I will welcome your questions and suggestions.

GL – May 8, 2015

Gary Lutin

Chairman, The Shareholder Forum

575 Madison Avenue, New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com

 

[2] Although the legal issues raised by an appraisal claimant’s vote in favor of a transaction were not relevant to our review of lead petitioner viability, many Forum participants are of course interested in the broader marketplace and public purpose implications of this case. Many experts have speculated that a reported statement of Stuart Grant as counsel to T Rowe Price about a “rock solid” case means that they will be basing their arguments on recent “appraisal arbitrage” decisions. In those situations, claimants bought shares after the record date for voting and in the absence of any voting rights of their own were able to base their claims upon beneficial ownership interests in a “fungible bulk” of stock owned by the stockholder of record, DTC/Cede, which included shares that had not been voted in favor of the transaction. It is assumed that an argument could be presented interpreting those cases to mean also that a beneficial owner who controls votes on the record date can vote in favor of a transaction and nevertheless seek “dissenter” rights to appraisal based on negative votes of other “fungible bulk” shareholders. However, some observers consider this argument unlikely, especially since Mr. Grant’s firm has itself presented compelling arguments against this extended application of the “arbitrage” cases in a recently filed brief defending eligibility challenges of a few T Rowe Price petitioners based on failure to maintain continuous ownership. That brief (a) provides facts about the segregation of their specified appraisal shares from the “fungible bulk,” (b) cites case law that the actions of beneficial owners should be ignored only when reliance upon the record holder’s acts is necessary to avoid confusion about actions, and (c) argues that “equitable principles” should be applied to avoid punishing – or presumably rewarding – a beneficial owner for acts of others without its knowledge. (See April 21, 2015 [4/28/2015 Public Version] In Re: Appraisal of Dell, Inc. (Consol. C. A. No. 9322-VCL): Petitioners Answering Brief in Opposition to Respondent’s Motion for Partial Summary Judgment on Entitlement Issues.)

 

 

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.