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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:

Fund manager wins respect for responsible reaction to voting error


Additional reports and court records addressing the voting errors referenced in the article below, as well as the fund manager's ownership errors, can be found in the "Entitlement to Appraisal Rights" section of the Dell project's reference page.


Source: Barron's, June 11, 2016 article


Fund of Information

T. Rowe Price’s $194 Million Proxy Blunder

After mistakenly voting to approve Dell’s buyout and costing four of its mutual funds a lucrative claim, the company announced it would repay the funds’ shareholders.

By Beverly Goodman
June 11, 2016

By now the massive mistake of T. Rowe Price Group’s proxy vote on the Dell buyout—it voted yes when it meant to vote no—has been essentially dispensed with. That’s in large part a credit to the firm’s swift and appropriate response, though it helps that few among us are interested in the finer points of proxy voting. And that’s unfortunate—in part because it obscures how impressive T. Rowe’s response is, but also because it allows investors to ignore how unfriendly the Delaware courts can be.

Michael Dell takes the stage during the 2015 Dell World Conference in Austin. Bloomberg News


In short: Two weeks ago, a Delaware court agreed with the “no” voters that the price Michael Dell paid in the leveraged buyout of the company he founded was too low by about $4 per share (see Follow Up, “Michael Dell’s $6 Billion Holdup”). But because of T. Rowe’s mistake, the firm (ticker: TROW) learned weeks ago that it would be unable to make a claim for the difference in share price. Once the court released its determination of fair value ($17.62 per share, versus the $13.75 Dell and Silver Lake Partners paid), T. Rowe announced it would repay four mutual funds and a handful of other accounts that money, plus interest, for a total of $194 million. T. Rowe has $765 billion in assets under management.

The $22 billion T. Rowe Price Equity Income (PRFDX) is the largest fund to benefit, while the $3.5 billion T. Rowe Price Science & Technology (PRSCX) has seen the biggest increase, amounting to 1.2% of its net asset value. The NAVs were adjusted on June 6.

THOUGH MOST NEWS REPORTS have referred to this as a computer error, T. Rowe CEO Bill Stromberg was quick to acknowledge to Barron’s that it was also due to human error. It was arguably in large part due to the arcane process of proxy voting. The Dell vote was actually five votes—the company kept delaying the meeting that would finalize the tally. T. Rowe voted no the first time, and typically the votes roll over when a meeting is delayed, which means T. Rowe voted no in the first four votes. But eight days before the final meeting, Stromberg says, Dell changed the meeting classification from a “proxy contest” to a “special meeting.” That wiped the old votes from the system, and since the default position is to vote with management, that’s what it did on that last vote.

The legal process for dealing with such a mistake, according to Mercer Bullard, a securities law professor at the University of Mississippi, is that a fund’s board of directors would encourage the fund to sue its management company and negotiate a settlement. Instead, Stromberg says he reached out to the funds’ board (one board oversees all of T. Rowe’s funds) and told them the firm’s plan to make the funds whole. That’s unusual. “In the world of litigating, you never get 100% damages,” Bullard says. “No matter how you cut it, T. Rowe’s decision is very shareholder-friendly.”

The one-time charge of $194 million in the second quarter of 2016 will reduce T. Rowe’s net income by $118 million, or 46 cents in diluted earnings per share. (Diluted EPS takes any convertible shares into account.) That’s no small hit for the company, and the stock is down 2%, to $74.37, since the June 6 announcement. But think of it as a booster shot to maintain the firm’s stellar reputation, or a vaccine against future legal ugliness. “We’ve taken some corrective steps right away,” Stromberg says, “and obviously we’re looking at the process to make sure there are not other issues lurking.”

The real problem, though, is lurking in the Delaware court system, says Bullard, which “allows companies to keep putting off the final vote until they know they’ll get the outcome they want.”


Copyright ©2016 Dow Jones & Company, Inc. All Rights Reserved.

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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