Chancery Knocks T. Rowe Price Funds Out Of
Law360, Wilmington (May 11,
2016, 5:25 PM ET) -- A Delaware Chancery judge on Wednesday knocked
T. Rowe Price funds' stock out of the appraisal case over
Dell’s $25 billion go-private deal, ruling that the shares are not
eligible for judicial valuation because they were voted in favor of the
transaction despite the investment firm’s intentions to the contrary.
In a detailed opinion, Vice Chancellor J. Travis Laster wrote that under
Delaware law, how a beneficial stockholder’s shares are voted is a crucial
factor in determining whether it is eligible for judicial appraisal, and
the shares beneficially held by T. Rowe Price Associates Inc. funds were
voted, through a "daisy chain" of intermediaries, in favor of Michael
Dell’s $24.9 billion take-private bid.
T. Rowe Price had steadfastly opposed the go-private deal in public
statements, and its shares were a major chunk of the stock involved in the
appraisal case connected to the deal, in which the petitioning
shareholders are arguing that the computer giant’s stock was
worth twice the deal consideration.
But in a complex tangle, T. Rowe Price’s computerized system for voting
instructions generated directions for the record holder of the stock,
which has the legal right to the vote under Delaware law, to cast it in
favor of the merger, according to court records.
The investment firm
has called this a “computer glitch” and argued it
should be held to its repeatedly stated intention, but Vice Chancellor
Laster, who acknowledged the computer instructions were a mistake,
rejected that position.
“When an investor elects to use intermediaries, the investor assumes the
risk that the intermediaries will err or otherwise fail to act in
accordance with the investor’s wishes,” he wrote. “Ironically, by making
this argument, the T. Rowe petitioners are effectively contending that
[the intermediaries] acted without actual authority (albeit with apparent
authority) because of the mistaken conveyance of voting instructions.”
The decision stands to have a big effect on the Dell appraisal case, which
went to trial in October, potentially severely limiting how much the
computer giant might have to pay out if Vice Chancellor Laster finds the
value of its stock was indeed higher than the deal price of $13.75 per
share. The ruling is also highly likely to be appealed to the Delaware
Supreme Court, and the vice chancellor wrote it is a situation the
Chancery Court has never had to address before.
Vice Chancellor Laster also went through a deep analysis of the evolution
of Delaware’s appraisal case law, and noted that past decisions that
appeared to foreclose on examining evidence over how particular shares are
voted should not necessarily apply in the instant case.
In those cases, such evidence was not available, but discovery in the Dell
case has shown how T. Rowe’s shares were voted, and it doesn’t follow that
the past decisions create an “iron curtain” to keep such evidence out of
the proceedings, the vice chancellor wrote.
Dell first broached the issue of T. Rowe Price’s votes when it
made a revelation during a routine hearing in May and
pushed to take discovery to figure out what happened.
After the discovery process, the computer giant urged the court to throw
out T. Rowe Price’s appraisal petition, arguing that the Chancery Court
must adhere to the letter of Delaware’s appraisal statute, otherwise it
could open the door to shareholders making tactical moves where they
publicly oppose a merger and then somehow vote in favor with impunity.
T. Rowe Price countered that the law’s interpretation must go beyond just
how shares were voted and consider evidence of intent.
A representative for T. Rowe Price told Law360 on Wednesday they were “in
the process of reviewing the opinion and evaluating our options."
Representatives for Dell declined to comment.
T. Rowe Price was also involved in separate unusual statutory issue in the
case when Vice Chancellor Laster reluctantly ruled in July that a group of
funds technically lost their appraisal rights when they retitled them in
the name of the Cede & Co., the Depository Trust Co.'s partner and
The vice chancellor said that an approach more closely tied to federal law
would be "preferable" but noted he was bound to Delaware law.
Meanwhile, the overriding issue of the value of Dell’s shares at the time
of the merger is still awaiting a decision from Vice Chancellor Laster.
During the five-day trial last fall, petitioning shareholders argued that
the deal price should have been about double what it was, at $28.61 per
share, meaning Dell left $26 billion in value on the table.
Dell is represented by Gregory P. Williams, John D. Hendershot, Susan M.
Hannigan and Andrew J. Peach of
Richards Layton & Finger PA and John L. Latham, Susan E. Hurd, Gidon
M. Caine and Charles W. Cox of
Alston & Bird LLP.
T. Rowe Price and the other petitioners are represented by Stuart M.
Grant, Michael J. Barry, Christine M. Mackintosh, Jennifer A. Williams and
Rebecca A. Musarra of
Grant & Eisenhofer PA.
The case is In re: Appraisal of Dell Inc., case number 9322, in the Court
of Chancery of the State of Delaware.
--Editing by Brian Baresch.
© 2016, Portfolio Media, Inc.