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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.



Note: As previously reported, Southeastern Asset Management has been a publicly reported supporter of a previous Forum program addressing their investment interests, but has not engaged in any private communications with the Forum concerning Dell other than granting requested permission to report their independent course.


Source: Reuters, March 21, 2013 article


Exclusive: Southeastern had eyed joining Dell buyout group - sources

A company logo of Dell is seen on the cover of its laptop at a Dell outlet in Hong Kong October October 21, 2009. REUTERS/Bobby Yip


By Nadia Damouni and Aaron Pressman
NEW YORK/BOSTON | Thu Mar 21, 2013 9:02pm EDT

(Reuters) - Dell Inc is set to disclose next week that its largest independent investor, Southeastern Asset Management, originally expressed interest in joining the proposed leveraged buyout deal that it now opposes, according to two people familiar with the matter.

On January 29, a week before the technology company's founder Michael Dell and private equity firm Silver Lake Partners announced their $24.4 billion buyout bid, Southeastern and its lawyers met with one of Dell's independent directors, Alex Mandl, who was part of a special committee reviewing the company's strategic options. Also at the meeting was the committee's legal adviser, Debevoise & Plimpton LLP.

Southeastern said at the meeting that it was interested in joining the leveraged buyout and retaining a stake in Dell, said the sources who had knowledge of the Dell filing on the proposed merger, which is expected to be published as soon as next Monday. Southeastern owns 8.5 percent of Dell, which made its name as a personal computer maker, but now also sells business software and technology services.

Southeastern also said it would oppose any buyout in the range of $14 to $15 per share (a range that had been mentioned in some media articles) that did not permit participation by large shareholders, one of the two sources said. The proposed deal, announced on February 5, is for $13.65 per share.

Representatives for Dell and Southeastern declined to comment. Southeastern has said publicly since the proposed buyout was announced that Dell is worth at least $24 per share, and the asset management company has been trying to persuade other shareholders to oppose the buyout.

It is unclear what Mandl's response was to Southeastern's request to join the buyout or whether Southeastern's proposal was communicated to Michael Dell and Silver Lake.

People close to the Dell camp say the merger document will show that Southeastern is now trying to kill a deal that it had wanted to participate in. But a person close to Southeastern said there is no inconsistency in their private discussions and public statements.

The person close to Southeastern pointed to the money manager's February 8 public letter to Dell's board, which stated that Southeastern would have endorsed "a go-private type sale where current shareholders could elect to continue to participate in a new company with a public stub...Unfortunately, the proposed Silver Lake transaction falls significantly short of that."

It is unclear whether the buyout group's insistence that the company be taken private was critical in Southeastern's eventual opposition to a takeover by the Michael Dell-led group.

Managers at Alpine Capital Research in St Louis, who have said they would vote their 2 million shares against the buyout, praised Southeastern, which manages the Longleaf family of funds, for sticking up for shareholders in the January talks.

"Looks positive to me," said Willem Schilpzand, an associate portfolio manager. "Sounds like Longleaf is fighting for the public leverage recap (where all shareholders stay in) or the option for shareholders to opt in to a going private deal."

"Either way, it looks like we would have the option of participating or not. That is all we can really ask for," Schilpzand said.

Dell's board has approved the Silver Lake buyout and also set a 45-day "go shop" period to see if better alternatives emerge. The period ends early Saturday morning.

Memphis-based Southeastern, led by fund managers Mason Hawkins and Staley Cates, has a lot of money riding on Dell. The fund accumulated its Dell stake - worth about $2 billion - at an average cost of $16.88 per share. That adds up to a loss of almost $400 million at the current buyout price.

Billionaire investor Carl Icahn has also thrown his weight against the buyout, arguing that Dell should borrow money to pay shareholders a special dividend of $9 per share instead. He has not disclosed the size of his stake, but CNBC reported on March 6 that he owned about 100 million shares, or 6 percent of Dell.

The buyout requires approval from a majority of shareholders excluding Michael Dell, who controls about 16 percent. Southeastern and several publicly declared allies, such as fund manager T. Rowe Price, control at least 14 percent.


Some analysts and rival fund managers say Southeastern's activism is a sign the fund is feeling pressure to perform, after losses in the aftermath of the financial crisis marred an otherwise strong track record.

Hawkins and Cates often say they succeed by being right 60 percent of the time. Now they have to convince other Dell shareholders that this particular case does not count among the other 40 percent -- when they're wrong.

Longleaf boasts a strong record, helped by outperformance in the first bear market of the 2000s. It gained an average of 6.55 percent a year over the past 15, beating the Standard & Poor's 500 Index by more than two percentage points a year and coming in ahead of 91 percent of similar funds, according to data from Lipper, a unit of Thomson Reuters.

But it stumbled through the financial crisis, losing over 50 percent of its value in 2008 versus S&P's 37 percent decline.

When Southeastern first bought into Dell in 2005 in the mid-$30s range, the firm crowed to investors in an annual report that it was paying "fire-sale prices." Dell is now trading at less than half that.

The firm has used activism rarely and only as the last resort after an initial investment has gone wrong. It has gotten involved as an activist 25 times in 23 U.S. companies since 1996. Dell is the largest company it has so far taken on, nearly double the value of second-ranked Chesapeake Energy Corp, according to FactSet's SharkRepellent research service.

Last year, it lobbied for changes at Chesapeake after a series of Reuters reports that CEO Aubrey McClendon had been borrowing from a lender who was also a big source of funding to the company. McClendon left the company this year but Southeastern was left with an estimated loss of $300 million to $400 million on its $2.3 billion original investment.

Financial adviser Peter Gellman in Highland Park, New Jersey, who has for years invested in Longleaf, said all value investors "have some black spots on their record."

"No one is perfect," said Gellman, who supports the firm's stance with Dell. "They will get active when they judge it appropriate - they're not hyper-active."

(Reporting by Nadia Damouni in New York and Aaron Pressman in Boston; additional reporting by Poornima Gupta in San Francisco; Editing by Soyoung Kim, Tiffany Wu and Ken Wills)

©2013 Thomson Reuters.


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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