Forum Home Page see Broadridge note below]

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.


 

Forum distribution:

Court decides fund manager's voting error makes its shares ineligible for appraisal rights

 

For the decision reported below, see

Note: The decision addresses voting of 31,052,130 Dell shares in 14 mutual fund and pension accounts managed by T. Rowe Price, each of which is identified on page 20 (PDF p.21) of the Opinion. In a previous July 13, 2015, Memorandum Opinion in the same case, the court determined that an additional 922,975 shares in 5 other accounts managed by T. Rowe Price were made ineligible for appraisal rights by administrative errors in the maintenance of continuous ownership. According to a July 30, 2015 court submission (footnote #1 on  page 1 of the Brief in Support of Motion; PDF p.10), only one of the accounts managed by T. Rowe Price, the Morgan Stanley Defined Contribution Trust with 357,500 shares, remains eligible for appraisal as a result of the fund manager having failed to process any voting instructions for the account.

Court records addressing both the voting and ownership errors can be found in the "Entitlement to Appraisal Rights" section of the Dell project's reference page.

 

Source: Law360, May 11, 2016 article


Chancery Knocks T. Rowe Price Funds Out Of Dell Appraisal


By Matt Chiappardi


Law360, Wilmington (May 11, 2016, 5:25 PM ET) -- A Delaware Chancery judge on Wednesday knocked several 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 nominee.

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.

 

This project is being 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. has declined the Forum's invitation to provide leadership of this project, but will be encouraged to collaborate in its progress to assure cost-efficient, timely delivery of information relevant to investor decisions.

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.

 

 

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.