Investors Say Dell Worth Twice $25B Buyout In
(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
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
"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.
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
"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
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
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.
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