December 14, 2017 / 12:10 PM / updated
reverses Dell buyout ruling that alarmed dealmakers
WILMINGTON, Del. (Reuters) - Delaware’s
Supreme Court ruled on Thursday that a lower court erred in finding
that the 2013 buyout of computer maker Dell Inc was vastly underpriced,
in an opinion that will likely restrict a hedge fund strategy aimed at
wringing cash from mergers.
A Dell logo is
seen in this illustration picture taken in Sarajevo, Bosnia and
Herzegovina, October 12, 2015. REUTERS/Dado Ruvic
Thursday’s ruling stems from an “appraisal” lawsuit, which allowed
Dell shareholders who opposed the $24.9 billion buyout to ask a judge
to determine the fair value of their stock.
Last year, a Delaware Court of Chancery judge ordered Dell to pay
Magnetar Capital and other Dell investors $17.62 for each of their 5.5
million shares, well above the $13.75 per share deal price paid by
Michael Dell and Silver Lake Partners.
The Supreme Court said Vice Chancellor Travis Laster abused his
discretion by rejecting the deal price as a way to measure the fair
value of Dell stock.
Dell declined to comment. Stuart Grant, the lawyer who represented the
investors seeking appraisal, did not immediately respond to a request
The Supreme Court opinion will likely be welcomed by corporate
dealmakers who have warned that Laster’s ruling would encourage hedge
funds to seek a quick profit by scooping up shares just before a deal
closes, then pursuing appraisal.
As corporate lawyers express it, Dell was properly shopped to
potential buyers such as Blackstone and the price was driven up during
However, there was plenty of criticism of the sale. It was approved by
a slim majority of shareholders. Billionaire investor Carl Icahn
encouraged dissatisfied Dell shareholders to seek appraisal.
Laster said he rejected the use of deal price to determine fair value
because private equity buyers and management-led buyouts inherently
undervalue a company.
The Supreme Court said Laster should have given “heavy weight” to the
deal price, given the evidence of fair play and market efficiency in
The Supreme Court remanded the case to Laster and said he should
follow the ruling’s guidance to determine fair value, which the court
suggested should be the deal price.
“We give the vice chancellor the discretion on remand to enter
judgment at the deal price if he so chooses, with no further
proceedings,” said the 82-page unanimous opinion written by Justice
In an August appraisal ruling, the Supreme Court said Chancellor Andre
Bouchard erred in finding payday lender DFC Global Corp was sold too
cheaply and criticized his finding that private equity buyers do not
necessarily pay fair value.
Larry Hamermesh, a professor at the Delaware Law School, said the two
rulings taken together will reduce appraisal cases, continuing a
recent trend of weeding out what the court sees as weaker shareholder
“The whole program here since Leo Strine became chief justice is about
getting rid of the crappy lawsuits,” Hamermesh said.
Strine took over the court in 2014.
Reporting by Tom Hals in Wilmington,
Del.; Editing by Chizu Nomiyama and Matthew Lewis
© 2017 Reuters All Rights Reserved