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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:

Questions raised about reliance upon professional experts to determine fair value


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: Financial Times, June 13, 2016 commentary

FINANCIAL TIMES > companies >




Inside Business

June 13, 2016 2:58 pm

A ding-dong in Delaware

Sujeet Indap

A dispute brought by Dell investors shows that valuations should be more than academic

Chairman and chief executive Michael Dell


In New York, mergers and acquisitions are the province of investment bankers with slicked-back hair and polished wingtips. But, if a deal price does not meet with universal cheers, the battlefield often shifts from a Manhattan conference room to a Delaware courtroom because US companies are domiciled in that state. There, the focus suddenly shifts to egghead professors sporting pocket protectors who offer competing, and often different, calculations of how much a company is worth.

In one closely watched case decided two weeks ago, the focus was on the technology company, Dell, which was taken private by founder Michael Dell in 2013. Some investors believed they had been short-changed, so they challenged the price in what has become known as an “appraisal” case.

Once an obscure quirk of Delaware law, appraisal has become a key remedy for shareholders and a tool for opportunistic hedge funds. When a company is sold for cash, unhappy stockholders can exercise so-called “dissenters” rights and ask a judge to assign a new value for their shares. This court-determined price can be higher than the deal price or lower. But, in many cases, it turns out to be the same because judges opt to defer to the deal.

It can be reached in a less rounded way, however.

When bankers advise company boards about what would constitute an acceptable buyout price, they often present a series of different calculations on a grid. A premiums analysis shows how much recent deals exceeded market trading prices. A “capitalised” earnings calculation applies a multiplication factor to an earnings forecast. Another approach involves adding up future cash flows and discounting them to reach a fair value today. For bankers, valuation is the painting of an intricate mosaic.

Alas, the Delaware court is often less nuanced. Although the appraisal statute has been interpreted to allow judges to choose whatever valuation method(s) they deem appropriate, in virtually all recent cases — including Dell — the court has relied solely on discounted cash flow. “The DCF valuation methodology has featured prominently [because it] merits the greatest confidence within the financial community,” the court has said. DCF also happens to be the favoured approach of scholars because of its theoretical elegance: an asset’s value should strictly be equal to the net cash it generates.

In the Dell dispute, the company’s expert witness was noted Columbia Business School economist Glenn Hubbard, best known for advising Republican politicians. Dell’s shareholders, seeking a higher price, retained Bradford Cornell of Caltech, the university that is home to Nasa’s rocket laboratory. They are among around a dozen valuation experts who can bill $1,000 per hour for their services, and work as affiliates of litigation consultancies — the best known being Analysis Group, Charles River Associates, Compass Lexecon and NERA. They are not formal employees but get to use the firms’ resources — notably an army of spreadsheet jockeys to do the supporting maths.


Despite the Delaware court’s confidence in DCF, the Dell expert’s use of it proved contentious. Dr Hubbard’s DCF, for the Dell side, computed that the company was worth $12.68 per share, suggesting that the $13.75 per share buyout price was a magnificent win for shareholders. Mr. Cornell, for the dissenters, concluded Dell was worth a wild $28.61 per share. As the judge wryly noted, this implied a $28bn aggregate valuation difference on a buyout worth only $25bn. Still, the judge thought the differences on their inputs to the calculations — profits, debt and equity levels, discount rates, cash adjustments — were all arrived at in good faith. So he cherry-picked the bits of each professor’s work that he found most defensible, to reach a valuation of $17.62 per share.

It seems the court is aware of the peril in this approach, writing in an earlier case: “The value of a corporation is not a point on a line, but a range of reasonable values, and the judge’s task is to assign one particular value within this range as the most reasonable value in light of all the relevant evidence and based on considerations of fairness.”

Still, such humility looks hollow when expert witnesses and judges use a single, fraught, technique. Bankers with their more circumspect, holistic approach to valuation offer a lesson to the professors and the courts who rely upon them.


© The Financial Times Ltd 2016


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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