December 14, 2017 / 12:10 PM
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,
a ruling that had allowed hedge funds to wring extra cash from the
A Dell logo is
seen in this illustration picture taken in Sarajevo, Bosnia and
Herzegovina, October 12, 2015. REUTERS/Dado Ruvic
The judge on the Court of Chancery
abused his discretion by not giving weight to the deal price of $24.9
billion, or $13.75 per share, as evidence of the fair value of the
company, the Delaware Supreme Court said.
Thursday’s ruling stems from what is
known as an “appraisal” lawsuit in which investors who oppose a merger
ask a judge to determine the fair value of the stock.
Wall Street dealmakers have warned that
appraisal has become an investment strategy for sophisticated hedge
funds, which buy shares just before a deal closes then seek to profit
in court. Dell declined to comment and Stuart Grant, who represented
the investors seeking appraisal, did not immediately respond to a
request for comment.
Last year, Vice Chancellor Travis Laster
found that Dell fair value was $17.62 per share, and ordered the
company to pay the difference to Magnetar Capital and others who
sought appraisal of 5.5 million shares.
Laster surprised corporate lawyers by
rejecting the price generated by what he acknowledged was an
unconflicted sale to founder Michael Dell and private equity firm
Silver Lake Partners. The judge instead focused on what he said were
inherent problems with management-led buyouts.
Laster should have given “heavy weight”
to the deal price, given the evidence of fair play and market
efficiency in the sale, according to the 82-page unanimous opinion
written by Justice Karen Valihura.
Laster “ignored the efficient market
hypothesis long endorsed by this court,” said the ruling.
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 ruling.
The decision is the second reversal of
an appraisal ruling in recent months by the Supreme Court, which
issues relatively few decisions on these types of lawsuits.
In August, the Supreme Court said
Chancellor Andre Bouchard erred in finding payday lender DFC Global
Corp was sold too cheaply and criticized Bouchard’s finding that
private equity buyers do not necessarily pay fair value.
Reporting by Tom Hals in Wilmington,
Del.; Editing by Chizu Nomiyama and Matthew Lewis
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