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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.


 

 

For a printable copy of this report with its referenced letters, click here.

Forum Report: Fair Investor Access (Dell Valuation Project)

 

Enabling Use of Appraisal Rights to Choose Dell’s Long Term Value

Reservation of appraisal rights

Investor reporting

Marketability of investment interests

The recently initiated project to address Dell shareholder interests in appraisal rights[1] has identified several requirements to make this theoretically sensible alternative a practical choice for investors. As summarized below, we are developing plans for processes that should allow any investor, including regulated funds concerned with “Level 1” qualification or index tracking, to efficiently acquire and administer shares of Dell’s long term investment value.

Please offer your advice of any interests that should be considered to guide our refinement of details during the next week.

Reservation of appraisal rights

Requirement: Prior to the date of voting, a stockholder of record must present the company with a formal written demand for appraisal. For beneficial (“Street name”) shareholders, someone must instruct the holder’s broker or custodian to arrange for the registered depository to present a legally compliant demand relating to the beneficial holder’s shares.[2] This  seemingly simple communication should be as easy as checking the boxes in proxy voting, but the infrequent need for appraisal demands has not stimulated anyone’s development of standardized forms and processes. It therefore usually involves considerable time and effort to find out who needs to be authorized to write letters and coordinate custodial arrangements, and to be sure that they do it.

Solution: Working with Delaware counsel, we are developing processes and staffing to manage the delivery of the required demand for appraisal on behalf of any Dell shareholder, either beneficial or registered. All that will be required of the investor is filling out a few identification spaces in a simple authorization form. This support should be operational by the end of next week, in time to meet deadlines for the scheduled July 18 voting date.

Benefit: Any Dell shareholder with record-date voting rights will be able to conveniently reserve rights to appraisal, establishing what is essentially a 60-day post-closing option to choose between the appraisal rights or the offer’s cash payment of $13.65.[3]

Investor reporting

Requirement: Since the provisions for appraisal rights were developed long before the existence of the SEC and modern expectations of reporting for “public” securities, and in a time when investors expected to wait only a few months for a court to decide the value, there is nothing in the law addressing the need for reporting to investors. Today, of course, responsible investment management requires not only informed decisions about the choice between appraisal rights and an offer price, but also continuing monitoring and evaluation of the investor’s interest in appraisal rights.

Solution: The Forum will be organizing a “Review Panel” of legal and valuation experts selected by appraisal right investors. Panel members will confer regularly with the attorneys responsible for the conduct of the appraisal proceeding, have access to confidential information, and be able to ask questions and request research. The Panel’s staff will publish reports quarterly and in relation to any major developments, and will include statements provided by any Panel members who wish to present comments or views.

Benefit: Investors in Dell appraisal rights will have very effective access to information on which decisions can be made, and will be able to delegate their own trusted experts to examine their interests.

Marketability of investment interests 

Requirement: Just as there was no need to address investor reporting in the pre-SEC days when appraisal rights were defined, the law does not include any provisions addressing the marketability requirements of modern investors. This is especially important for today’s regulated fund managers, many of which lack authority to hold illiquid investments or need to satisfy standards for market valuation of assets even if they have no concern about liquidity.

Solution: We are currently exploring SEC registration of interests in the appraisal rights to allow their public trading. This obvious solution had been identified when Forum participants considered appraisal alternatives in the 2005 Providian transaction,[4] but it was too late to plan the fairly complicated arrangements for that situation. For the Dell situation, the effort is clearly justified and we should be able to report procedural expectations by next week.

Benefit: Assuming a practical path to the benefits of SEC registration, all types of regulated and unregulated investors will be able to consider interests in appraisal rights based on their analysis of Dell’s long term value as a going concern, without the handicap of illiquidity.

♦♦♦

More specific plans, including dates, will be reported by the end of next week.

Our objective is to support the interests of investors who want the same thing that Michael Dell and Silver Lake are seeking in their proposed acquisition: the long term value of the Dell enterprise, which everyone apparently agrees is greater than the price set by current market bids. Appraisal rights were designed for exactly this purpose, and we will welcome your advice of what is needed to make them work for you.

GL – June 14, 2013

Gary Lutin

Chairman, The Shareholder Forum

575 Madison Avenue, New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com


 

[3] The Delaware statute gives a stockholder the right to withdraw the appraisal demand to accept the originally offered payment at any time until 60 days after the effective date of the merger transaction; see DGCL § 262(e).

 

 

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.