Dell Shareholders Win Hollow Court Victory Over Buyout Priceby
Judge says company stock was worth almost $4 more per share
Dell to pay at least $18.7 million to some investors
Dell Inc. shareholders who thought they were fleeced by the deal that took the computer maker private in 2013 have scored a rare -- though hollow -- legal victory.
Investors in Dell deserved almost $4 a share more than they received from the management-led buyout, a Delaware judge ruled Tuesday. The impact will be limited, however, because he disqualified about 29 million of the 34 million shares in the suit on procedural grounds.
Disgruntled shareholders had sought as much as $28 a share, more than double the $13.88 that company founder Michael Dell and buyout firm Silver Lake Partners paid out in the deal. Delaware Chancery Court Judge Travis Laster settled instead on $17.62 as a fair value for the stock.
That means Dell will have to pay a total of $18.7 million, less than 1/10th of 1 percent of the $25 billion buyout. Shareholders will also get interest, which could put their total recovery at more than $30 million.
There was “widespread and compelling evidence of a valuation gap” between the market’s perception of Dell’s performance and the company’s “operative reality,” Laster said.
It’s unusual for a judge to find such a large discrepancy between a buyout offer from management insiders and the true fair value of the operation, said Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance.
“This really highlights the question of fairness of all management-led buyouts,” Elson said Wednesday. “When a judge finds discrepancies of about 30 percent in value, that’s a signal that investors had legitimate gripes about the deal.”
David Frink, a Dell spokesman, declined Tuesday to comment on the ruling. Stuart Grant, a lawyer for the shareholders who challenged the valuation, also declined to comment.
Michael Dell pushed to take the computer maker private after a quarter-century as a publicly traded company as he sought more leeway to cut jobs and shift strategy to court high-margin customers spending billions of dollars on data centers.
Some shareholders sued, arguing that Dell’s offer shortchanged them. The holders demanded their shares be appraised for fair-market value. Under Delaware law, investors have such rights if they’ve hung onto their stock through the deal’s closing.
While rejecting claims that the stock was worth $28 a share, Laster found there was additional value in the company that hadn’t been properly captured in the offer from Dell and Silver Lake Partners.
Lawyers for Dell and the buyout firm argued at trial that the company vigorously shopped around for higher bids for the computer maker and that the buyers raised their bid seven times during negotiations. They sought to convince Laster that their last offer, $13.75 plus a 13-cent dividend, amounted to fair value.
When shareholders do prevail in appraisal actions, they often receive a bump in the share price that amounts to pennies over the original offer, Elson said. “Having a judge hand out about $4 more is a huge bump,” he added.
While the judge’s ruling amounted to a small victory for Dell shareholders who accused the founder of attempting to steal the company on the cheap, most investors won’t share the win because of a procedural quirk in Delaware law.
Laster ruled last year that five large institutional investors including T. Rowe Price Group Inc. and Northwestern Mutual Life Insurance were ineligible to have their Dell shares re-appraised because the way in which they held their Dell shares didn’t meet the legal requirements.
The case is In re: Appraisal of Dell Inc., CA9322, Delaware Chancery Court (Wilmington).