In a surprise ruling by the Delaware Court of Chancery, a judge has overridden "the market" and has declared that the board of Dell sold the company for $6 billion too little. Vice Chancellor J. Travis Laster ruled in favor of protesting shareholders, and has ordered the company to pay the complainants their portion of the difference -- and opens the door for a wider class-action suit by the remainder of the company's shareholders on record when the company went private.
This buyout transaction saw Dell and Silver Lake paying $13.75 and a 13-cent special dividend per share in the struggling computer manufacturer. That amounts to $24.9 billion for the company, which has struggled in recent years due to the disruption of the traditional PC market by smartphones and tablets.
Michael Dell's bid to take the company he founded private met with opposition from
activist investor Carl Icahn, who believed that Dell and Silver Lake's offer for the company was too low. Icahn eventually ended his opposition to the company's privatization. The deal was finalized on October 29, 2013.
Despite ruling against the company in his judgement at the end of last month, Laster said that the company's "advisors did many praiseworthy things" and noted that there were no higher offers for the company. The judge also made it clear that "unlike other situations that this court has confronted, there is no evidence that Mr. Dell or his management team sought to create the valuation disconnect so that they could take advantage of it."
Justifying his ruling, Laster said that "the concept of fair value under Delaware law is not equivalent to the economic concept of fair market value. Rather, the concept of fair value for purposes of Delaware's appraisal statute is a largely judge-made creation, freighted with policy considerations."
One of the complainants, T Rowe Price, is not eligible for the payout, as the group voted in favor of the deal. The investment agency is paying its investors $124 million in total as a result of the deal, regardless.
The New York Times spoke to takeover attorney Martin Lipton about the situation. Lipton suspected that a "private equity buyer might insist on a provision in the merger agreement allowing it to walk away if a small fraction of the shares -- one or two percent -- perfect appraisal rights." The attorney added that "this approach is likely to be unpalatable to selling boards, however, and creates substantial risk that the buyer will exit the transaction when the appraisal cap is exceeded."
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