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Dell Appraisal Case Focuses on Intrinsic Value and Proxy Plumbing
Arguments addressing analysis of “fair value”
Responsibility for proxy voting
Recent court filings of legal briefs in the Dell appraisal proceedings
may have relevance beyond that case to the broader interests of Forum
participants concerned with applications of “value investor”
principles of analysis as a foundation for long term capital
commitments, and also to the interests some of you have been concerned
about “proxy plumbing” improvements to support your ownership rights.
Arguments addressing analysis of “fair value”
The following briefs were filed during the past few weeks by counsel
for the petitioning stockholders demanding appraisal rights and by
Dell as respondent, concluding the submissions of post-trial valuation
arguments initiated last month:[1]
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January 25, 2016, In Re: Appraisal of Dell, Inc. (Consol. C.
A. No. 9322-VCL): Petitioners' Post-Trial Answering Brief
(69 pages, 638 KB, in
PDF
format)
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February 15, 2016, In Re: Appraisal of Dell, Inc. (Consol. C.
A. No. 9322-VCL): Respondent Dell Inc.'s Post-Trial Answering Brief
(68 pages, 697 KB, in
PDF format)
Notably, counsel for the appraisal claimants has now shifted the
primary focus in its January 25 Answering Brief – in “Argument I. The
Merger Price Does Not Represent the Fair Value of Dell as a Going
Concern” (pages 4-13, PDF pp. 15-24) – to the distinction between
marketplace pricing of securities and a company’s intrinsic value, as
recognized by both value investors and Delaware law,[2]
and as encouraged by Forum research.[3]
This view of valuation is then supported with both facts and logic to
show that since the buyers neither planned nor implemented any changes
in the company to increase its intrinsic value, the only way they
could have justified the transaction was to “acquire the company at a
price below the intrinsic value and thereafter sell the asset a time
when the intrinsic value can be realized.” (Petitioners’ Answering
Brief page 9, PDF p. 20.)
The subsequent Dell Answering Brief argues that market pricing should
be considered a determination of intrinsic value, and that there is no
reason to believe that management buyouts are likely to be priced at
less than intrinsic value.[4]
Responsibility for proxy voting
While the specific issue of entitlement to appraisal rights in this
case requires the fund manager to argue that its voting “discrepancy”
has no legal relevance,[5] most investors
will be pleased that the evidence presented in the following briefs
shows that the service providers responsible for processing proxies
have in fact developed very effective practices to assure the reliable
execution and reporting of specific shareholder voting instructions:
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January 8, 2016, In Re: Appraisal of Dell, Inc. (Consol. C.
A. No. 9322-VCL): Certain Petitioners' Motion for Summary Judgment
Regarding Entitlement to Appraisal; Brief in Support of Motion and
in Opposition to Respondent's Motion for Summary Judgment, with
Exhibits
(382 pages, 36.9 MB, in
PDF
format) [Note: 1,554 pages of exhibits designated by counsel as
"Confidential and Filed Under Seal" have been deleted.]
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February 8, 2016 (public version filed February 15, 2016), In Re:
Appraisal of Dell, Inc. (Consol. C. A. No. 9322-VCL): Respondent
Dell Inc.’s Reply Brief in Support of Motion for Partial Summary
Judgment, and Opposing Petitioners’ Cross-Motion, as to Petitioners
Who Voted in Favor of the Merger (49 pages, 370 KB, in
PDF
format)
Legal arguments about the relevance of the vote in fact rely heavily
upon a 2007 court decision that based satisfaction of voting
requirements on shares of stock that at the time could be viewed
only as being held and voted in a “fungible bulk.”[6]
Since that time, the SEC had encouraged improvements in a 2010
“concept release,” presented by Dell as the sole exhibit to its Reply
Brief (Exhibit A), and a 2011 University of Delaware “Roundtable”[7]
presented recommendations to establish “end to end confirmation” of
specific voting actions. The marketplace responses by Broadridge,
Depository Trust, and other Roundtable participants can be seen in the
evidence of the current briefs as reliably transmitting authorized
votes, including mistaken ones, of specific stock holdings, and in the
process establishing sound records for confirming and reporting those
votes. It should be noted that the current processes for
administration of voting also seem to allow accommodation of whatever
disclosure policies may be established to respect voting privacy.[8]
Your questions and comments will be welcomed.
GL – February 16, 2016
Gary Lutin
Chairman, The Shareholder Forum
575 Madison Avenue, New York, New York 10022
Tel: 212-605-0335
Email:
gl@shareholderforum.com
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