Buyers underprice US$24.9b buyout of Dell by 22%
Print Edition
MICHAEL Dell and Silver Lake Partners underpriced their 2013 US$24.9 billion buyout of Dell Inc by about 22 percent and may have to pay tens of millions to investors who opposed the deal for the computer maker, a Delaware judge ruled on Tuesday.
The ruling, which applies to about 5.5 million Dell shares, is a victory for the specialized hedge funds that have increasingly tried to squeeze more money from mergers using a type of lawsuit known as appraisal.
The lawsuits allow investors who oppose a deal, such as the bitterly contested Dell buyout, to sue and ask a Delaware judge to determine a fair deal price.
Activist investor Carl Icahn urged Dell shareholders to vote down the deal and take their case for fair value to court. Initially appraisal was sought for about 40 million shares, but the bulk was removed for procedural reasons.
In Tuesday’s ruling, Vice Chancellor Travis Laster said fair value was US$17.62 per share, not the US$13.75 per share deal price. With interest, investors who sought appraisal will collect about US$20.84 per share.
The Dell investors presented evidence that fair value was US$28.61 per share, which would have cost Michael Dell and Silver Lake hundreds of millions of dollars. The buyers contended that fair value was US$12.68.
Dell and a lawyer for the stockholders, Stuart Grant, declined to comment. Tuesday’s ruling can be appealed.
Laster said the Dell buyout took advantage of a dip in the company’s stock price and its board never determined the intrinsic value before negotiating.
“The original merger consideration was dictated by what a financial sponsor could pay and still generate outsized returns,” wrote Laster.
The judge explained why deal price was not a fair value indicator, particularly in a management-led buyout. Delaware judges had used deal price in appraisals involving the closely watched buyouts of Ancestry.com in 2012 and BMC Software Inc in 2013.
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