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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:

More confusion among lawyers about investment principles explained in Dell appraisal decision


Note: Some of the views presented below are not consistent with the court's explanation of its decision. For views of several experts familiar with appraisal law, see

For other reports of the referenced decision and related court filings, see the "Appraisal of Fair Value" section of the Dell project's reference page.


Source: Bloomberg BNA, June 8, 2016 article

June 8, 2016

'Dell' Ruling Raises Questions Over Fair Value of Buyouts

From Corporate Law & Accountability Report

By Michael Greene

June 3 — A recent Delaware Chancery Court decision finding that Dell Inc. stock was undervalued in a 2013 management-led buyout clarified that deal price isn't always the best indicator of a company's “fair value” in appraisal proceedings.

In In re Appraisal of Dell Inc., the court—instead of looking to the negotiated merger price—relied on a valuation method known as “discounted cash flow” to determine that some shareholders should have received almost $4 more per share than what company founder Michael Dell and buyout firm Silver Lakes paid (105 CARE, 6/1/16).

The decision raises a really interesting question about how “you value a company,” Ann Lipton, a professor at Tulane University Law School, told Bloomberg BNA. Is a company valued by performing a cash-flow analysis or is it valued by what people are willing to pay for it? she asked.

Not Fair Value

Under Delaware law, investors that choose not to participate in a merger can petition the chancery court for an appraisal of how much their shares are worth.

Before Dell, the chancery court issued several opinions finding that the parties' negotiated price was the best estimate of a company's value under Delaware's appraisal statute (53 CARE 53, 10/23/15). Those decisions did not involve management-led buyouts.

In one such decision involving the appraisal of Inc. stock, Vice Chancellor Sam Glasscock in January 2015 made several comments about the difficulties “a law-trained judge” faces in resolving appraisal decisions (13 CARE 255, 2/6/15).

However, Vice Chancellor J. Travis Laster identified several factors in the Dell case that he said showed the negotiated price wasn't fair value.

Laster found that the parties' use of a leveraged buyout (LBO) model to determine the deal price had the effect of undervaluing the company. An LBO is where one company buys another using a significant amount of borrowed funds, such as bonds, to finance the deal.

LBO Model Disfavored

Attorneys said in several law firm memoranda that Dell will have a significant impact on future transactions led by management.

“Facts really matter” in appraisal proceedings, Morris James LLP attorneys said in a May 31 blog post, adding that companies pursuing management-led buyouts “will have a hard time doing almost any deal that will be adequate to establish an appraisal value.”

A June 1 memo authored by attorneys at Debevoise & Plimpton LLP observed that in particular, Laster “appeared to call into question whether a financial sponsor requiring a 20% minimum IRR [internal rate of return] could ever be paying ‘fair value,' at least in circumstances where leverage is constrained.”

It is interesting that Laster distrusted LBO figures based on the amount of return sought by Silver Lakes, Lipton said. She observed that the court was concerned that company value based on what people are willing to pay may be unduly impacted by external constraints, such as the buyers' need for financing and the risks associated with the deal.

Lipton added, however, that such constraints are normally what the parties take into account in pricing a transaction.

Distinguishable Ruling

Lipton suggested that the Dell decision wouldn't have much of an impact on appraisal cases involving arm's-length transactions.

“Right off the bat,” this decision was different from others where the merger price was the best indicator of fair value because Dell involved a management buyout, Lipton said. Companies involved in arm's-length deals will be able to distinguish their cases from Dell, she said.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

For More Information

The decision is available at


Copyright © 2016 The Bureau of National Affairs, Inc.

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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