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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)

 

Reliable Support of Dell Appraisal Rights

Clarifying what is offered

Progress with process

 Support of marketability

Approaching the deadline for reserving appraisal rights prior to Dell’s July 18 special meeting, we have been making good progress with the newly organized Dell Valuation Trust’s administrative management of shareholder demands[1] and also with our development of broader plans for support of these rights.[2] This progress was slowed, however, by the need to address confusion resulting from my inadequate explanations of the support plans.

Clarifying what is offered

Starting with an apology for the confusion, it must be stated clearly that the only thing being offered now by the Dell Valuation Trust is a service to process the formal demand required to reserve a shareholder’s appraisal rights. My statement last week that the Trust’s processing of the demand would “make the rights eligible for assignment to the Trust” was intended to assure Trust recognition of the validity of those rights for whatever support arrangements might be offered in the future. Lapsing into patterns of communication common among financial professionals, I neglected to explicitly state that since no other arrangements had yet been defined, either for services or for investment, there was nothing else being offered beyond the specified processing service.

The inadequacy of my explanation, unfortunately, allowed further confusion to develop as rumors spread and a blogger reported them without bothering to investigate.[3] As we go forward, I encourage you to help prevent similar diversions by telling me immediately about anything that needs to be clarified.

Progress with process

The reason we developed a service supporting the processing of the written demands required to secure appraisal rights was that we were aware of the challenges encountered by many investors. In the absence of standardized procedures, a beneficial shareholder has to find someone at the account’s broker or custodian who can find out how to deliver the right form of instructions to the registered stockholder, Depository Trust Company (“DTC”), for the execution of a letter that can be delivered to the company. Those with experience allow ten business days, but consider it risky to count on that.

Under the circumstances, we met this week with senior management representatives of DTC’s parent, The Depository Trust & Clearing Corporation, who have agreed to guide our development of efficient, reliable arrangements for timely processing of the demand letters. We are naturally very grateful for their help, and particularly for their rescheduling of busy people to accommodate the July 18 deadline for Dell demands.

Support of marketability

While establishing marketability of investor interests in appraisal rights is simple in theory, doing anything for the first time is necessarily complicated. And it is naturally important to get it right. This means that we have been considering a wide range of possible solutions to virtually every element of it, and we are still refining the design. I will be continuing to seek your views of what has value to you, but I will not be able to report what will be offered until I am satisfied that it is designed as well as it can be, and Bingham McCutcheon is satisfied with the way it is defined and presented. As someone who has successfully pioneered capital market innovations before, I know that this is the way you do it.

For those of you who have asked about the risk of establishing marketability, you should understand that I cannot offer advice. But I can offer logic. Is there any reason why rights to receive payments relating to appraisal rights could not be securitized the same way mortgages are securitized? Or S&L litigation claims? Or pork bellies? Obviously, none of those templates would be optimal for appraisal rights, but it is probably safe to assume that there is nothing on earth (or elsewhere) that can’t be securitized.

For those of you who have asked when the rights will be marketable, everything could fall into place within two or three months but we are allowing up to six months to get all the pieces together and ready for participant consideration. We have therefore been developing interim plans for two things:

(1)   the organization of administrative support for the appraisal rights process independently of any securitization entity, and

(2)   the organization of reporting functions to support informed private trading among qualified institutional buyers.

I will be reporting more on these interim plans next week.

GL – June 28, 2013

Gary Lutin

Chairman, The Shareholder Forum

575 Madison Avenue, New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com

 

 

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.