Investors Attack Key Expert In Dell Stock
Wilmington (March 2, 2016, 9:42 PM ET) --
Dell investors seeking appraisal of their shares from the computer
giant's $25 billion go-private deal attacked one of the company’s key
expert witnesses in Delaware Chancery Court on Wednesday, saying he
“manipulated” data in his valuation analysis so that results came in below
the actual transaction price.
During post-trial arguments in Wilmington, Stuart M. Grant of
Grant & Eisenhofer PA, attorney for Dell Inc. stockholders who contend
the fair value of their shares
should be more than double
the price in the $24.9 billion 2013 buyout by founder Michael Dell and
private equity firm
Silver Lake Partners, contended that the company’s valuation expert
essentially crossed the line from expert witness to advocate by producing
“litigation-driven forecasts” in his discounted cash flow analysis.
Discounted cash flow analysis, or DCF, is a common method for determining
the going-concern value, and thus fair stock worth, for a company when the
Chancery Court evaluates the price of a deal, and Grant argues that Dell’s
expert, Glenn Hubbard, made unwarranted adjustments to the projection
figures used as a basis for his results.
Dell has countered that the shareholders’ own expert failed to update his
figures to take several factors into account that weren’t in the company’s
financial favor, particularly a sharp decline in the personal computer
sales market in 2013.
But Grant argued that the adjustments go beyond mere updates and that they
use information Hubbard acknowledged were beyond his expertise, making his
“Those numbers he has are manipulated, altered, not updated,” Grant told
Vice Chancellor J. Travis Laster. “His opinion needs to be rejected.”
Hubbard’s work yielded a price-per-share value of Dell of $12.68, more
than a dollar lower than the $13.75 deal price.
Petitioning stockholders claim the fair value for their shares is actually
$28.61, meaning Dell left $26 billion in value on the table, thanks to the
several factors including the company’s burgeoning transformation from one
that focused on selling personal computers into one that offers a broader
array of technology services. The cost savings that were relied upon for
Dell's valuation analysis was actually being reinvested into the company,
Dell returned fire, arguing that it’s the shareholders’ expert, Bradford
Cornell, whose analysis should be considered unreliable, because it is
based on myriad untested assumptions.
Dell attorney Charles W. Cox of
Alston & Bird LLP called the shareholders’ case “preposterous,”
casting it as one of theory versus the company’s facts based on reality.
Cox said the shareholders only “focus on what’s metaphysically possible”
and that “regardless of the shareholders’ theories in the abstract, they
don’t hold up to the facts of the case.”
Dell went through a robust market check, and the special committee vetting
the deal negotiated seven price increases before coming to the $13.75
number, he said.
What’s more, Cox argued that the Chancery Court has routinely held to the
deal value for a transaction being the fair market value, citing
that found just that including the appraisals of “American Idol” owner CKx
BMC Software Inc.
Grant pushed back, arguing that deal price is not necessarily the best
indicator of value, otherwise there would not be a judicial appraisal
process, and that the Dell case was an example of a market anomaly that
Michael Dell was able to capitalize on.
The appraisal action was lodged in 2013 by Cavan Partners LP — which held
100 shares, according to court records — and was eventually consolidated
with dozens of other shareholders' claims, which went before the Chancery
Court for a five-day fact trial in October.
Post-trial arguments in Chancery Court are typically held well after the
evidence is presented, and the sides are allowed subsequent briefing.
Still remaining to be hashed out is an unusual summary judgment motion in
which several large asset manager shareholders, including a
T. Rowe Price Associates Inc. fund, are asking Vice Chancellor Laster
to temporarily disregard
his ruling in July
in which they technically lost their appraisal rights when they retitled
them in the name of the Cede & Co., the Depository Trust Co.'s partner and
The vice chancellor rendered his ruling reluctantly, writing in an opinion
that an approach more closely tied to federal law would be "preferable,"
but noted he was bound to Delaware law.
Vice Chancellor Laster rendered no rulings Wednesday but did urge the
sides to settle, warning that the time for a deal was fast running out.
“This may be your final opportunity to keep your fate in your own hands
rather than handing it over to me,” he said.
Dell is represented by Gregory P. Williams, John D. Hendershot, Susan M.
Hannigan and Andrew J. Peach of
Richards Layton & Finger PA and John L. Latham, Susan E. Hurd, Gidon
M. Caine and Charles W. Cox of Alston & Bird LLP.
The petitioners are represented by Stuart M. Grant, Michael J. Barry,
Christine M. Mackintosh, Jennifer A. Williams and Rebecca A. Musarra of
Grant & Eisenhofer PA.
The case is In re: Appraisal of Dell Inc., case number 9322, in the Court
of Chancery of the State of Delaware.
--Editing by Brian Baresch.
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