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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.

Note: On December 14, 2017, the Delaware Supreme Court reversed and remanded the decision above, encouraging reliance upon market pricing of the transaction as a determination of "fair value." The Forum accordingly reported that it would resume support of marketplace processes instead of judicial appraisal for the realization of intrinsic value in opportunistically priced but carefully negotiated buyouts.



Source: The Wall Street Journal, March 20, 2013 article


EARNINGS  |  Updated March 20, 2013, 9:36 p.m. ET

Dell Walks Fine Line in Pitch for Buyout


Chief executives typically like to boast about their companies, but as a Friday deadline for rival bids to buy his firm approaches, Michael Dell finds himself in the opposite position.

Mr. Dell needs to persuade Dell Inc. investors that the prospects for the company he founded in his dorm room in 1984 and has been running for the past six years are anything but rosy if he is to succeed with his plan to take the computer maker private.

Getty Images

CEO Michael Dell


Friday marks the end of a 45-day window to flush out alternative offers to the $24.4 billion buyout deal that Mr. Dell and private-equity firm Silver Lake Partners reached last month. The $13.65-a-share offer has sparked derision from some shareholders who believe the price undervalues the Round Rock, Texas, company.

No alternative bid has emerged. Absent a rival offer, Dell has said it would schedule a shareholder vote on the proposed buyout in June or early July.

That sets up months of debate over two differing outlooks on Dell—including Mr. Dell's unusual position of having to talk down his company's prospects in order to get shareholders to accept the current offer.

Some of that position is expected to be set out in a public filing that Dell is set to issue in coming weeks. In the proxy filing, said people familiar with the matter, Dell is expected to say that its board asked an outside firm to provide a financial forecast for Dell's current fiscal year ending in January 2014, after a string of financial projections by Dell management proved overly rosy.

The proxy, these people add, is expected to say Dell's board was thus compelled to take the company in a different direction and that the offer from Silver Lake and Mr. Dell was the best option.

The proxy is also expected to say that Mr. Dell wasn't responsible for the forecasting, these people note.

Under the proposed buyout, Mr. Dell would continue to lead Dell and would contribute his 14% ownership stake in the company toward the buyout.

The preparation of the proxy is still in progress, one person said, and it is unclear what form the final language will take.

For weeks, private-equity firm Blackstone Group LP has scoured Dell's financial records weighing a potential bid, said people familiar with the matter. Other technology companies and private-equity firms have also either been approached or considered jumping into the deal fray.

Two wealthy investors, O. Mason Hawkins and Carl Icahn, have argued the sky isn't falling on Dell and therefore stockholders deserve more money.

Mr. Mason's Southeastern Asset Management Inc.—Dell's largest outside shareholder with an 8.4% stake—last month said the company is worth close to $24 a share, a level the computer maker's stock price hasn't approached since 2008. Shares closed Wednesday at $14.33 on the Nasdaq Stock Market.

The company and Silver Lake haven't publicly commented on Southeastern's analysis, but Wall Street analysts say a fair value for Dell shares is closer to $14 a share to $15 a share.

Meanwhile, Mr. Icahn wrote a letter to Dell's special board committee that was disclosed this month, in which the investor proposed the company use cash and debt to pay shareholders a $9-a-share special dividend, totaling $16 billion, and keep their shares rather than accept the buyout group's bid. Mr. Icahn said in a letter to Dell's board that he owns a "substantial" stake in the company, though he hasn't detailed the size of his holding.

In a financial analysis Southeastern released last month, the firm said the fair value of Dell's PC business, which generated roughly $1.3 billion of the company's $3.01 billion operating profit for the year ended Feb. 1, may be close to $3 a share, if each dollar of profit translates into $4 or $5 in per-share value, as reflected in the market value of rival PC businesses such as Hewlett-Packard Co.

A person familiar with Southeastern's thinking said the $2.6 billion in operating profit generated by non-PC businesses should be valued at 14 or 15 times earnings, or more than $13 a share.

Southeastern has said Dell's main businesses, not taking into account the company's cash stockpile and the value of Dell's small but profitable financial-services business, means Dell is worth significantly more than the current $13.65-a-share buyout offer.

The gamesmanship leaves Dell shareholders to puzzle over the options. James Rosenwald, managing partner at Dalton Investments LLC, which reported owning 1.24 million Dell shares as of Dec. 31, said he is confident there will be a higher price for Dell, whether it comes from a sweetened bid from Mr. Dell and Silver Lake's buyout group or another option, like Mr. Icahn's.

But Mr. Rosenwald said there is uncertainty about all options, such as whether banks would be willing to lend more money to feed a higher price.

All of this makes Dell's proxy more important, as the document will likely be closely scrutinized by shareholders as they decide whether to give their blessing to the proposed deal.

The filing is expected to focus in part on a review of corporate financial forecasts presented to the board starting last summer, the people familiar with the matter said. Dell managers said they expected $5.6 billion in adjusted, or non-GAAP, operating profit for the fiscal year that ends in early 2014, the people said.

But around that time, Dell began badly missing the targets set forth by managers, who were counting on the rollout of Microsoft Corp.'s new Windows 8 operating system and an increase in PC sales to drive Dell's profits higher in 2014. At that point, Dell's board sought a forecast from an outside firm, said the people familiar with the situation.

Now, rather than the $5.6 billion figure, Dell expects an operating profit closer to $3 billion, its lowest in years, the people said.

People working on potential challenges to the Dell offer say the revelation of information on the background of the deal before the proxy is filed could dissuade counter bids or make it tougher for another party to shore up financing.

Write to Shira Ovide at and Sharon Terlep at

A version of this article appeared March 21, 2013, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Dell Walks Fine Line In Pitch For Buyout.

Copyright ©2013 Dow Jones & Company, Inc. All Rights Reserved


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.

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