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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.


Forum distribution:

Dell celebrates success of strategy for value realization after buying out public shareholders


Source: Forbes, May 29, 2015 article



Roger Kay



5/29/2015 @ 10:58AM

Dell Settles Into Its Post-Public Persona

Dell held its second annual analyst conference this week in Austin, and all the cadres were on hand, the major firms like IDC, Gartner, and Forrester, and many smaller firms and independents.  You might well ask, why bother, since the stock is no longer traded and hasn’t been for a year and a half?  The answer would be, the company still needs to maintain a conversation with the community, keeping it up to date on how things are going.

It’s just that the makeup of the community is different now.  Gone, the days of pleasing Wall Street.  Hello, customer base; you know, the folks who pay the rent.  And suppliers and partners who provide components for and help put together the increasingly complex and layered solutions Dell has on offer.  And people like us, the tech analysts who have covered the company for years and can put its current trajectory in perspective.

Dell is behaving differently these days.  It can invest for the long haul to solve customer problems, taking less profit in certain situations without having to explain itself to hungry “investors.”  In an environment of relative calm, employees can take the long view, concentrate on customer needs, and execute cleanly.


The four types of capital that Dell applies to practical innovation

So, how is the company doing, freed as it is from its bonds?  (Well, actually, it still has some bonds, just no publicly traded equity.)  Michael Dell, who owns 75% of the stock (Silver Lake Partners owns the rest), says the company is now able to maintain a higher risk profile and move more quickly.  At a reception, one of the managers recounted a story about asking him permission to invest in a particular business and having him say, “Let me ask my board of directors, management committee, and attorneys …. sure, go ahead.”

Some of the analysts at the event noted that being private doesn’t in itself lead to a higher risk profile.  Those of us who have worked at IDG, the private tech analyst and publishing firm, know just how conservatively run that company is from an investment perspective.  Almost no business can be stood up without having its own revenue stream already in place.   Be that as it may, a private company at least has the flexibility to consider a more aggressive stance, and Dell has chosen to use its streamlined governance to create a lighter-weight, more proactive organization, one more responsive to its customers.

The presentation by CFO Tom Sweet was a bit surreal.  There were lots of metrics, but they all had immeasurable variables associated with them.  Revenue grew in the “mid-single digits” on an unknown base.  Operating income grew at a rate that was “exponential above that.”  I think it’s safe to say the company is making money, particularly since one of the few concrete things Sweet did mention was that it has already paid down $3.4 billion of its debt from the management buyout.  Clearly, something is working.  At the rate this is going, Michael Dell is going to be able to settle all the debt, buy out Silver Lake, and hang onto the entire company free and clear.

Speakers and panelists at the conference bandied about the tired buzzwords “innovation” and “solutions” a fair bit.  But there was grumbling in the hallways during breaks that the company still has a relatively light software portfolio compared to rivals like IBM and Hewlett-Packard, and most of its solutions are heavy on elements contributed by third parties.  Probably the best spokesman for the company in this domain was Neil Hand, who, as the vice president of Client Product Innovation, has one of the buzzwords in his title.  Hand, a hardware guy at heart, talked about sexier materials and designs in the lineup, but he was clear that “[Dell’s] primary role is integrating the innovations of others,”  In other words, Dell mostly provides the “glue” for elements developed by partners.  He gave as examples Samsung in OLED displays, Sharp in “infinity edge” displays, Microsoft for custom coding, and Intel for power optimization.

Dell maintains a range of technology sources, including straight-up suppliers, companies in which Dell has made an equity investment, and outright acquisitions.  But I did talk with some of the software product people, who made a good case that there is plenty of decent, home-grown development going on at the company.  In particular, John Thomson, general manager of Advanced Analytics, made a solid case that Dell is leading in some areas of development.  He has been working with three acquisitions whose products are now well bonded together with the local glue.  Statistica, the new name for StatSoft, an advanced analytics company Dell purchased in March 2014, provides a platform that, after chewing on multiple complex data sources, returns a probability factor that can be used to drive alerts and other events.  Boomi, an earlier acquisition, is a cloud-based system that helps integrate those data sources for Statistica.  And Toad, also an acquisition, is used to manage (e.g., spin up and down, copy, secure) some of the databases used by Statistica.  I saw a fine demo showing how all three have been integrated to predict hospital admissions for asthma based on elements like patient history, weather, pollen type and count, and a dozen other variables, including changes in those variables over time.

Probably the most powerful case that Dell really does have an creative engine was made by a panel called Practical Innovation at Dell, which featured four managers with distinct but interlocking roles.  Jim Lussier, managing director of Dell Ventures, represented financial capital; Jai Menon, chief research officer of Dell Research, spoke for technology capital; Joyce Mullen, vice president and general manager of Dell Global OEM Solutions, stood in for partnership capital; and Elizabeth Gore, Dell’s Entrepreneur-in-Residence, was the voice of human capital.

Lussier’s $300 million fund makes investments averaging $3-5 million in companies identified as potentially disruptive and has bought 25 such firms.  He looks for “massive market opportunities” and “passionate teams.”  Gore’s expertise in the startup world makes her an expert on what constitutes a passionate team.  Menon tries to stay ahead of developing technology trends, swinging organizational attention toward promising areas.  And Mullen manages the alliances and partnerships that do joint engineering and get products to market.  Among them, they optimize Dell’s technology investments so as to produce new products and solutions that customers actually want.  The company doesn’t do a lot of green-field R&D.  Much of it starts with a market need and works backward to figure out a way to address that need.

Michael Dell himself presided over the event, giving the opening speech and circulating at one of the receptions.  Recalling his earlier days, he has returned to wearing glasses, which give him an intellectual look.  His sideburns have grayed a bit more in the past year.  He was loose-limbed and relaxed and yet full of energy.  He timed the management buyout perfectly and is now concentrating on turning the company with his name on the door into a well-honed machine.  No wonder he was in such fine spirits.

Disclosure: Endpoint has a consulting relationship with Dell.


2015 LLC™

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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