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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:

Financial service professionals clarify processes and responsibilities for mutual fund voting to avoid errors


For the court decisions that the discovery of T. Rowe Price's voting errors made the shares held in its managed accounts ineligible for appraisal, and denying their motion for an "equitable" award of interest accruals, see

Additional court records and reports 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: FinOps, June 10, 2016 article

T. Rowe Price Investor Payback: The Unpushed Button

June 10, 2016 By Chris Kentouris

For fund managers, proxy voting isn’t a minor housekeeping matter. Depending on just how financially controversial the corporate agenda is, the vote can be as crucial to the health of investor portfolios as any trading decision. There is plenty of regulatory rulemaking to keep everyone’s eye on the ball so when something goes awry, it’s big news.

An unintended operational mishap at T. Rowe Price, a name not ordinarily associated with any enforcement action or scandal, has now turned into a costly lesson. It shows that automation alone isn’t always enough to ensure accuracy. The Baltimore-headquartered mutual fund giant said it will compensate investors about US$194 million which reflects the financial loss they incurred when T. Rowe Price accidentally voted in favor of Dell Corp.’s leveraged buyout offer in 2013.

T. Rowe Price was among a group of investors that petitioned Delaware Chancery Court Judge Travis Laster to appraise the fairness of Dell and private equity firm silver Lake Partner’s US$13.75 a share deal. On May 31 of this year, the judge ruled that Dell’s fair value was really US$17.62 a share, lending credibility to T. Rowe Price’s intention of voting against the buyout. Unfortunately, T.Rowe Price couldn’t receive compensation from Dell, despite its intentions to vote against it, because its recorded vote was in favor of the buyout.

T. Rowe Price’s decision to voluntarily step up to its responsibility to make its investors whole will go a long way to mitigating the risk of investor lawsuits. Still, the question remains: how did this very expensive error happen?


The short answer is that T.Rowe Price neglected to manually override the pre-programmed default vote in favor of management in the Institutional Shareholder Services (ISS) proxy voting system. T. Rowe Price uses the well-known third-party proxy advisory firm, to notify it of upcoming meetings, provide voting recommendations, collect voting instructions and convey them to Broadridge Financial.

US federal securities laws do not specifically address how an adviser must exercise its proxy voting authority for its clients. However, in 2003 the Securities and Exchange Commission clarified that under the Investment Advisers Act, an adviser is considered a fiduciary with the obligation to cast proxy votes in the best interests of its clients and disclose how it voted. Legal experts say that it is unlikely the SEC will fine T. Rowe Price, because there is no evidence of an intentional breach of responsibility. In 2009, the SEC fined West Palm Beach, Fla-based INTECH Investment Manager US$300,000 and its former chief operating officer David Hurley US$50,000 but that was for inadequately describing its proxy voting policies and failing to address a material conflict of interest when voting.

By comparison, the mistake made by T. Rowe Price’s back-office reflected an unintended process snafu. The fund management firm is accepting responsibility for its action, or inaction,  but it’s possible that what happened reflected a vulnerability caused by the automated system. During the Delaware court hearings it was revealed that T Rowe Price’s head of corporate governance Donna Anderson intended to vote against the Dell LBO and the firm had, in fact, cast its vote against the buyout offer. That vote was correctly registered by the ISS platform.

Unfortunately, the Dell buyout was so controversial that the shareholders meeting was postponed several times. The final postponement changed the date of the meeting from July 2013 to September 2013. When the date was changed in the ISS platform, the previous vote against management disappeared and the system reverted to the default vote in favor of management. At that point, the correct vote against the buyout would have had to be manually re-entered by T. Rowe Price. That didn’t happen.

Does that mean there’s a problem in the ISS voting system? Not at all. Proxy voting experts tell FinOps Report that T. Rowe Price should have been aware that its vote could revert to the default decision if the meeting date changed. That is because a change in the meeting date is considered to be equivalent to a change in agenda, requiring a re-do of votes associated with the previous date. If someone at T. Rowe Price should have known this, it also means that someone would have been responsible for manually re-inputting the correct vote. It is unclear whether that person would have been Anderson herself or one of her colleagues. Corporate governance directors typically determine voting policies, but often leave the actual voting to back-office operations staff.

T Rowe Price declined to respond to FinOps’ questions as to how the voting glitch occurred and what process changes will be made in the future. However, media reports indicate that no one from the firm will be fired.

ISS also would not discuss its role in the voting error, leaving several lingering questions. Did ISS or its voting system have an automated process to alert a client if a vote has been changed? If not, that message might have made a difference to T. Rowe Price and other clients who are unaware or forget that the system reverts to default under certain circumstances. If there was an automated alert, clearly it didn’t reach the correct party at T. Rowe Price or wasn’t acted upon by the person who received it. In this scenario, the mistake could come down to office turnover, ignorance of the system or someone simply overlooking the message.

Industry Practice

Several other large mutual fund complexes contacted by FinOps acknowledge that the Dell voting situation was ripe for error, because of the continual change in meeting date. None of their compliance managers wanted to discuss their specific policies but say that, in the case of a “normal” vote where no contentious matters are discussed, operations managers customarily rule in favor of management. However, in the case of contentious proxy battles or other transactions that could have an economic impact to the fund, portfolio managers and governance managers often consult together before a final decision is made. Often third party proxy advisory firms, such as ISS, are consulted. Sometimes proxy advisory firms only provide voting recommendations, sometimes they actually cast votes and other times they do both.

In the case of “high-profile” votes, say mutual fund compliance managers, at least two separate “back-office” individuals should be responsible for operationally verifying that the correct vote was cast and recorded once they receive the decision from the corporate governance director. The corporate governance director is then ultimately informed of each vote which must be stored and disclosed to investors.

But what happens in the event of a change in the meeting date for a vote? The compliance managers at the mutual fund complexes say they have instructed their proxy voting advisory firm to separately email the corporate governance manager and the compliance department a notice of the change in record date and the need to review their voting strategy or recast their vote. In the case of T Rowe Price it could not be determined whether any of its executives were personally notified by ISS that the meeting date for the Dell vote had changed and more importantly the original vote against the buyout had been deleted.

The predicament of T. Rowe Price serves as a clarion to mutual fund managers to take a hard look at their voting procedures. It’s a harsh reminder, for the lack of a button being pushed, millions in profits can fly out the window. Regardless of how much effort and money is thrown into warding off any legal damages, the event is probably also going to cause some reputation damage among investors.

Earlier this week, T. Rowe Price’s Chief Executive Officer William Stromberg put a positive spin on the Delaware judge’s ruling saying it validated the firm’s investment view that the original buyout consideration was too low. “By compensating our clients based on the court’s ruling, clients will come out ahead as compared with how they would have fared had they taken the merger compensation,” he adds in a statement.

Of all the T Rowe Price funds which invested in Dell, T Rowe Price’s Science and Technology Fund will experience the highest impact from the additional funds — its net asset value increase the most– by 1.2 percent. Other funds impacted by the funding include its Equity Income Fund, its Institutional Large Cap Value Fund, and its US Equities Trust Large-Cap Value.


Copyright © 2017 FinOps




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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