Michael Dell bought his PC biz for a bargain, must get checkbook out for stiffed shareholders A small number of former shareholders in Dell could be getting a sizable payout after a Delaware court ruled the IT biz was undervalued when it went private. Delaware Vice Chancellor Travis Laster ruled that the fair price for the company's shares at the time it went private was $17.62 per share, 22 per cent more than the $13. …
"Value is what the market is prepared to pay".
Ordinarily, yes, but it's not, as is commonly insinuated, definitional. Sure investors and their advisors might not do better than chance but find one who'll admit that their decision aren't based on an understanding of market value. It's just that usually, their judgments are the only ones that happen to matter. In this case though, the court gets to decide. And whatever you might think of lawyers, in this case I'll side with them.
@"The price paid was above current market at the time."
It was below two rival bids, Blackstones was a proper bid and higher.
The biggest issue I had with this deal is the cash came from the cash reserve of the company. $7.2 billion of the cash came from Dell Inc, and Dell (the man) only paid $500 million. The rest was borrowed from banks against Dell Inc.
But that company cash is owned by the shareholders, he gave them their own cash to buy them out. And the bank lend against the assets, and clearly the assets of Dell Inc were worth enough even without the cash reverse in the company!
He could have given them that cash back as rolling dividends to increase the value of the shares. Or simply given them the cash as a one off, if the market wasn't valuing the cash reserve properly. Instead he used it to buy Dell from them.
I assume the board of directors approved the purchase, and those who got outvoted later sued. Well, I'm not on any company's board, but isn't that how it typically works? If ANY process had to get 100% approval from ANY voting body, nothing would ever get done. So, if the majority of share holders agreed to the lower price, that's the way it goes.
It's not like you get to vote for a president, and then sue because the other candidate got more votes. Trust me, Mitt Romney definitely would have tried if that were how it worked. Bush/Gore isn't a counter-example, because the dispute was the outcome of the vote, not the fairness of the vote.
So the wife and I were getting a divorce. No big deal, except we had this damn house. The wife said it was worth £100K, but our lady realtor said we should sell it for less than £80K. My wife didn't believe it, so she sued me for selling it under market price because I was having an affair with the same lady realtor/appraiser that I sold it to for £75k. "One opinion against two," I na-na-na-na-na-nad. "Tough luck."
Unfortunately, the judge agreed with my ex and said I owed her £12.5k plus interest. Luckily, the judge also said I didn't have to pay any penalty or worry about being prosecuted for theft or breech or anything since I made sure everybody knew I was having an affair with the realtor lady. I have no idea where my barrister dug up that goofy precedent or earned some ancient favour he could call in, but it didn't come cheap.
Then again, I didn't spend anywhere as much time in bed with my wife and mistress combined as Dell spent in bed with Silver Lake, so it's not exactly the same thing. I.e., Dell get off lucky.
If a company is being taken over such that the public shares will no longer exist, or as in this case
being taken private, then the original shares will no longer be valid and have to be exchanged for cash, new shares, or a combination.
In these cicumstances a minority of shareholders cannot block the deal.
Otherwise minority shareholders (one share?) would be able to hold everyone else to ransom.
"One of the biggest losers in the case was the investment firm T Rowe Price, which at one time was one of Dell's largest shareholders. Its claim against Dell, which would have netted the firm around $100m, was thrown out because the firm accidentally voted in favor of the deal, despite publicly opposing it."
Whoops! $100m is probably small change for an investment firm, but I would love to have been present when they realised their mistake. I have a vision of an executive trying to scribble out the tickmark and only making it worse.
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