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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

Inviting Comments for Response to Dispute Between Dell Appraisal Petitioners

A motion was filed in the Dell appraisal case yesterday afternoon on behalf of petitioners managed by Magnetar Capital, seeking the court’s establishment of a “co-lead” status for Magnetar as well as for its legal counsel to “ensure that Magnetar’s directions are implemented” in the continuing proceedings.[1] Your comments are invited, either for attribution or anonymous reporting, to guide a response by counsel for Cavan as the initiating petitioner in the case addressing the interests of all claimants.

Summarizing Magnetar’s position, they cite concerns about control of the proceedings by the currently appointed Lead Counsel representing petitioners managed by T. Rowe Price,[2] partly because of the conflicts of interest created by their challenged eligibility based on the recently disclosed votes in favor of the Dell buyout,[3] but also because Magnetar has not been able to participate in the management of the case.[4]

 Preliminarily, it has been suggested that counsel for Cavan[5] request the Court’s consideration of the following issues that may be relevant to the interests of all unchallenged Dell claimants:

A.

Interests of petitioners with challenged claims may differ from those of other claimants. If there is a significant risk that a petitioner’s claim may be ineligible for appraisal rights, and thus entitled only to the offer price without interest accrual, that petitioner’s interests may be best served by a rapid resolution of the case without regard to valuation. This interest has become very significant since Dell and T. Rowe Price have established a briefing schedule that does not require the petitioners to file their answering brief until the end of January 2016,[6] rather than the usual month, so that a court determination of eligibility and possible appeals will leave this issue open until long after a valuation.

B.

The manager of petitioning accounts may be concerned about minimizing liability. Assuming investors in the petitioning funds may seek to hold the fund manager responsible for amounts that would have been realized but were lost because the appraisal rights were not effectively established, then the fund manager may have a practical financial interest in minimizing the value of those potential claims. A lower settlement or valuation award, for example, would reduce the amount of the fund manager’s possible liabilities to its investors.

C.

Counsel to the challenged petitioners may have conflicting duties. Counsel to the challenged petitioners has a professional duty to support the interests of the clients by which it is engaged, and as indicated in the sections above those interests may differ from those of the unchallenged claimants. Counsel for the challenged petitioners may also be concerned about its own financial interests to the extent that its investment of time and money in the case is based on anticipated rewards related to the realization of benefits for which its clients may prove to be ineligible.

I will of course welcome your questions as well as any comments, and look forward to reporting what is presented to support your interests.

GL – August 20, 2015

Gary Lutin

Chairman, The Shareholder Forum

575 Madison Avenue, New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com

 

[3] In paragraph 3 of their motion, Magnetar’s counsel states “As a threshold matter, T. Rowe Price failed to disclose to the Magnetar Funds that it had first come to discover on or about October 2014 (and possibly earlier, in October 2013) that its shares had been voted in favor of the merger….” For the previously reported issues of the eligibility challenge, see May 18, 2015 USA Today: "Dell moves to boot T. Rowe from appraisal case" and the subsequent July 30, 2015 (public version of brief filed August 6, 2015), In Re: Appraisal of Dell, Inc. (Consol. C. A. No. 9322-VCL): Respondent Motion for Partial Summary Judgment as to Petitioners Who Voted in Favor of the Merger.

[4] Magnetar’s counsel states in paragraph 12 of its motion that “Magnetar needs to be able to share in the control of these proceedings, which heretofore it has not been able to do,” and in paragraph 15 reports, “Indeed, the Magnetar Funds understand that settlement discussions may be underway and they have not been invited in participate in any such conversations and have not been solicited for their opinion of the case or their settlement calculus.”

[5] It should be noted that Magnetar is now represented by the same law firm that serves as special counsel for Cavan, with Cavan’s consent. See May 26, 2015 Forum Report: Inviting Suggestions for Effective Management of Dell Appraisal Case.

[6] See August 19, 2015, In Re: Appraisal of Dell, Inc. (Consol. C. A. No. 9322-VCL): Stipulation and Order for Scheduling the Motion for Partial Summary Judgment as to Petitioners Who Voted in Favor of the Merger.

 

 

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.