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.


 

 

For a printable copy of this report, click here.

Forum Report: Dell Appraisal Rights

 

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]

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:

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

 


[1] See the January 6, 2016 Forum Report: Dell’s Expert Arguments Supporting “Widely Divergent” Appraisal Value; other legal briefs and expert reports addressing valuation submitted in the Dell case, including pre-trial as well as post-trial, are available in the “Appraisal of Fair Value” section of the Forum’s Dell Valuation Project Reference page.

 

 

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.