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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 reference:

Legal analysis of decision holding fund manager responsible for votes it controls


For the decision reported below, see

Note: The decision addresses voting of 31,052,130 Dell shares in 14 mutual fund and pension accounts managed by T. Rowe Price, each of which is identified on page 20 (PDF p.21) of the Opinion. In a previous July 13, 2015, Memorandum Opinion in the same case, the court determined that an additional 922,975 shares in 5 other accounts managed by T. Rowe Price were made ineligible for appraisal rights by administrative errors in the maintenance of continuous ownership. According to a July 30, 2015 court submission (footnote #1 on  page 1 of the Brief in Support of Motion; PDF p.10), only one of the accounts managed by T. Rowe Price, the Morgan Stanley Defined Contribution Trust with 357,500 shares, remains eligible for appraisal as a result of the fund manager having failed to process any voting instructions for that account.

For previously reported views of the decision, see the May 25, 2016 Forum Report: Court Defines Responsibility for Voting in Appraisal Demands. Court records addressing both the voting and ownership errors can be found in the "Entitlement to Appraisal Rights" section of the Dell project's reference page.


Source: Delaware Business Court Insider, May 25, 2016 commentary

Dell Shareholders' Appraisal Claims Denied After Voting Mishap

Brett M. McCartney, Delaware Business Court Insider

May 25, 2016

Brett McCartney

In July 2015, the Delaware Court of Chancery issued an opinion in In re Appraisal of Dell, Consol. C.A. No. 9322-VCL, holding that the technical missteps of a custodial bank necessarily required the court to deny certain beneficial stockholders' demands for appraisal. Nearly a year later and after trial, Vice Chancellor J. Travis Laster held that certain other petitioners seeking appraisal of their Dell shares were barred from doing so because the record holder of the shares voted in favor of the Dell going-private merger and, in doing so, violated the "dissenting stockholder" requirements of Delaware's appraisal statute, Section 262 of the Delaware General Corporation Law. Again, the court was faced with a situation where the petitioners argued that the defect in their appraisal demand was inadvertent. And yet again, the explicit requirements of Section 262 demanded denial of the appraisal claims. Interestingly, Laster noted with approval the recent "appraisal arbitrage decisions," which decline to require a petitioner to "share-trace" when demonstrating that the petitioners' shares were not voted in favor of a merger. However, Laster relied upon information that effectively traced the Dell petitioners' shares as voting in favor of the merger when holding that the petitioners' appraisal claims were barred.

In this most recent opinion in In re Appraisal of Dell, C.A. 9322-VCL (Del. Ch. May 11, 2016), the court considered appraisal demands of 14 mutual funds sponsored by T. Rowe Price & Associates Inc. and institutions that relied upon T. Rowe to direct the voting of their shares. The T. Rowe petitioners were not record holders of their Dell shares. The T. Rowe petitioners held their shares through custodial banks, who were participant members of the Depository Trust Co. (DTC). The DTC held the shares in the name of its nominee, Cede & Co., which was the record holder. As the record holder, Cede held the legal rights to vote the T. Rowe petitioners' shares and demand appraisal for the shares. As the record holder, Cede was required to vote the T. Rowe petitioners' shares in accordance with T. Rowe's instructions. While T. Rowe publicly opposed the merger, its voting system generated instructions for Cede to vote the T. Rowe petitioners' shares in favor of the merger. T. Rowe retained Institutional Shareholder Services Inc. (ISS) to update T. Rowe of upcoming shareholder votes and ISS's recommendations regarding those votes and to provide those instructions to T. Rowe's custodial banks. In an effort to make the voting of the T. Rowe shares more efficient, T. Rowe's internal voting-management system set default voting instructions to approve management-supported mergers. Those instructions were provided through the daisy chain of entities and, ultimately, to Cede, which voted the T. Rowe petitioners' shares in favor of the merger.

A special meeting of Dell's shareholders occurred July 18, 2013, to vote on the merger. At the time of that meeting, T. Rowe confirmed that its instructions were to vote against the Dell merger. The July 18 meeting was adjourned and, after several subsequent adjournments, on Sept. 12, 2013, the special meeting of the Dell shareholders was finally held. Prior to the Sept. 12 meeting, T. Rowe's voting management system generated a new voting record, replacing the instruction to vote against the merger with a default instruction to vote for the merger. No one from T. Rowe confirmed the voting instruction prior to the Sept. 12 meeting. As a result, the T. Rowe petitioners' shares were voted in favor of the merger.

The Delaware appraisal statute requires, among other things, that the petitioner seeking appraisal has not voted the appraisal shares in favor of the merger or consented to the merger in writing. The court discussed the impact of Section 262's requirements on record holders of shares, such as Cede. Theoretically, Section 262 could be interpreted to prevent Cede from demanding appraisal for any shares when it votes a single share in favor of the merger on behalf of a shareholder. The Delaware Supreme Court, mindful of brokers or nominees potentially holding record shares on behalf of a variety of shareholders, has held that record holders may split their votes and seek appraisal for shares not voted in favor of a merger. A necessary consequence of allowing vote splitting is that a record holder can only demand appraisal for the specific shares that did not vote in favor of the merger. In this instance, that prohibited the T. Rowe petitioners from pursuing appraisal claims.

In reaching its conclusion, Laster considered and distinguished the aforementioned appraisal arbitrate decisions, which generally support the proposition that the court need only look at the record holders' aggregated votes when determining whether a shareholder's shares voted against a merger. Laster noted that there was no available evidence in the decisions regarding how specific shares voted. As a consequence, Laster stated that the appraisal arbitrage decisions concern situations where there is an absence of proof, as opposed to circumstances present in Dell where evidence exists and is available demonstrating how the shares were voted.

Of particular importance in this decision is the court's discussion of the burden shift in demonstrating compliance with Section 262. A petitioner can establish a prima facie case that the "dissenting stockholder" requirements were met by showing that the record holder held sufficient shares not voting for the merger to cover the appraisal class. The burden then shifts to the respondent to demonstrate how the record holder actually voted the shares for which appraisal is sought. The respondent company could rely upon public filings, internal control numbers or other voting authentication materials to demonstrate how the record holder voted its shares. If, as was the case in Dell, such information indicates that the petitioners' shares voted in favor of the merger, the court will dismiss the appraisal claim and the petitioners will receive the merger consideration without interest.

Brett M. McCartney ( is a partner at Morris James in Wilmington and a member of its corporate and fiduciary litigation group. He practices primarily in the Delaware Court of Chancery and Delaware Superior Court and focuses on corporate governance and complex commercial litigation, stockholder litigation, fiduciary duties, alternative entity disputes, class action, and derivative litigation.


Copyright 2016. ALM Media Properties, 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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