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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 distribution:

Opening of Dell appraisal trial with expert view of $28 per share intrinsic value for $13.75 per share buyout


The specific valuation arguments reported below are presented in the following pre-trial briefs:

Additional court filings can be provided upon request.


Source: Law360, October 5, 2015 article

Investors Say Dell Worth Twice $25B Buyout In Appraisal Row

By Matt Chiappardi

Law360Law360, Wilmington (October 5, 2015, 7:46 PM ET) -- Dell investors seeking appraisal of their shares from the computer giant's $25 billion go-private deal told a Delaware Chancery judge Monday that the share price should have been worth roughly twice the transaction price, arguing that the company essentially left $26 billion in value on the table.

As the appraisal trial for Dell Inc. kicked off in Wilmington, petitioning shareholders argued that the fair value of the computer giant should be significantly higher than the $24.9 billion buyout by founder Michael Dell and private equity firm Silver Lake Partners in 2013, which offered investors $13.75 per share with a dividend worth 13 cents per share.

Petitioning shareholders say the stock price should be around $28 per share, and that there was a "substantial gap" between the intrinsic value of Dell and its market price. The company was in the midst of a transformation into one that focused simply on selling personal computers into one that offers a broader array of technology services, was making the moves and acquisitions to accomplish that feat, and essentially cashed its shareholders out at a historically low price, they argued.
The shareholders put their valuation expert, California Institute of Technology professor Bradford Cornell, on the stand, and he testified that Dell's actual value did not mesh with the market price for the computer company.

"The intrinsic operating value of the company was significantly higher that the market price," Cornell said in court.

Shareholders said that Cornell did not, as Dell's valuation expert had, revise financial forecasts downward to account for a weaker market for desktop computers, in the face of competition from devices like smartphones and tablets, noting that it is offset by the company's investment in and transition into other business lines such as cloud computing and network security.

Dell refuted Cornell's contentions, asserting that the market for personal computers was indeed deteriorating when the go-private transaction was being considered and challenging how the professor evaluated the ramifications of the company's complex tax structure spread out over several countries.

The company called one of its directors, Alex Mandl, chair of the special committee that vetted the deal, to the stand, who testified that Dell was indeed "struggling" in the face of less consumer demand for personal computers.

"Dell was not in a strong spot at the time," Mandl said, referring to the summer of 2012. "The landscape had shifted dramatically in the last few years."

The appraisal action was first lodged in October 2013 by Cavan Partners LP — which held 100 shares, according to court records — and the case was eventually consolidated with dozens of other shareholders' claims, which are now being put under the Chancery Court's microscope for a fact trial scheduled to last until at least Thursday.

Under Delaware law, shareholders are eligible to seek appraisal of their shares after a merger if they continuously held stock through the deal's closure and neither voted in favor of the transaction nor consented to it in writing, but petitioners have already been hit with several setbacks in the case.

Vice Chancellor J. Travis Laster ruled in July that several large asset manager shareholders, including Northwestern Mutual Series Fund Inc. and a T. Rowe Price Associates Inc. fund, technically lost their appraisal rights when they retitled them in the name of the Cede & Co., the Depository Trust Co.'s partner and nominee.

The vice chancellor rendered his ruling reluctantly, writing in an opinion that an approach more closely tied to federal law would be "preferable," but noted he was bound to Delaware law unless overturned by the First State's high court.

Confusion over how T. Rowe Price directed its funds to vote their shares also hangs over the case, with Dell arguing discovery indicated the asset manager gave an intermediary proxy system incorrect instructions.

That resulted in the funds' record stockholder Cede & Co., through a chain of proxies, actually voting in favor of the buyout.

T. Rowe Price has been a vocal and consistent opponent of the buyout and has said it views the apparent discrepancy in its communication of voting instructions as "irrelevant" to its ability to pursue appraisal.

A majority of Dell shareholders did approve the buyout in September, after then-Chancellor Leo E. Strine Jr. upheld last-minute tweaks by Dell's board to voting rules and record date, dousing what was a stiff and well-publicized opposition campaign.

Dell is represented by Gregory P. Williams, John D. Hendershot, Susan M. Hannigan and Andrew J. Peach of Richards Layton & Finger PA and John L. Latham, Susan E. Hurd, Gidon M. Caine and Charles W. Cox of Alston & Bird LLP.

The petitioners are represented by Stuart M. Grant, Michael J. Barry, Christine M. Mackintosh, Jennifer A. Williams and Rebecca A. Musarra of Grant & Eisenhofer PA.

The case is In re: Appraisal of Dell Inc., case number 9322, in the Delaware Court of Chancery.

--Editing by Katherine Rautenberg.


© 2015, Portfolio Media, 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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