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By Yin Wilczek
Dell Inc. will head to court Sept. 27 to try to undo a decision over its 2013 management-led buyout that could cost it millions of dollars more in additional payments to a group of hedge funds.
The case is closely watched by other Delaware corporations because a decision by the Delaware Supreme Court could clarify how state courts will treat stockholder appraisal claims ( Dell Inc. v. Magnetar Global Event Driven Master Fund Ltd., Del., No. 565,2016, oral argument 9/27/17 ).
In October 2013, Dell founder Michael Dell and private equity firm Silver Lake Partners acquired the company for $13.75 per share, a total of $25 billion. Dell investors holding about 34 million shares petitioned the Delaware Chancery Court on the sale price, arguing that their shares were worth as much as $28 each.
In May last year, the Delaware Chancery Court concluded that the 14-month sale process led by Dell Inc.’s independent special committee was sound. Nonetheless, it found that the “fair value” of the company was $17.62 per share, about 28 percent more than the take-private price.
The company will tell the Delaware Supreme Court in oral argument Sept. 27 that the chancery court erred in determining Dell’s fair value without giving any weight to the buyout price. Magnetar Global Event Driven Master Fund Ltd. and other shareholders challenging the valuation will argue that the chancery court’s ruling was amply supported by the record.
Delaware’s appraisal statute allows shareholders that choose not to participate in a merger to file appraisal actions asking the chancery court to assess a fair value for their shares. Dell’s oral argument comes amid ongoing efforts by the state and its courts to limit appraisal claims, which have climbed in the last five years.
In August, the Delaware Supreme Court ruled in DFC Glob. Corp. v. Muirfield Value Partners LPthat the merger price negotiated by the parties should be given great weight unless the sale process was less than robust or tainted by conflicts.
Dell told the court in a Sept. 20 letter that it intends to rely on the ruling.
The chancery court’s May 2016 ruling had a limited impact on Dell, because Vice Chancellor J. Travis Laster disqualified, on procedural grounds, about 29 million of the 34 million shares in the suit. The ruling left the company on the hook for about $30 million, which included interest on the amount the chancery court concluded the remaining shareholders should have received for their shares.
Dell appealed Laster’s decision in November. It argued in a court filing earlier this year that the chancery court’s ruling was inconsistent with the appraisal statute.
“Delaware courts have consistently found that the merger price is a reliable indicator of fair value where, as here, the court determines that there has been a sound transaction process,” it said. “The trial court compounded its error by creating a broad presumption against the reliability of the merger price in MBO transactions, even in cases where no topping bid emerges despite a robust market check involving both strategic and financial parties.”
Dell’s case will be argued by Gregory P. Williams, Richards Layton & Finger PA in Wilmington, Del.
The funds’ case will be argued by Lawrence Rolnick and Steven Hecht, Lowenstein Sandler LLP, Roseland, N.J.
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