In Re Appraisal Of Dell Inc.

2016 WL 3186538 (Del. Ch. 2016)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

Dell was on a path for transformation from a strict pc sales company. They did this by acquisitions. After a buying spree, Mr. Dell and management believed that the Company would continue to grow its PC business at a rate of 1-2% annually. They valued the Company at $22.49 per share (by line of business) and $27.05 per share (by business unit). The market price of the Company's stock traded around $14 per share during the same period. Mr. Dell decided to consider a Management Buyout. The numbers looked good, and Mr. Dell called Alex Mandl, the Company's lead independent director, and reported on his conversations with Southeastern, Silver Lake, and KKR. He told Mandl that he wanted to pursue an MBO. The Board met and told Mr. Dell that it would consider an MBO. The Board formed a special committee and granted it the power and authority to consider an MBO or any other strategic options. The Board would not recommend any transaction without a prior favorable recommendation from the Committee. Silver Lake proposed an all-cash transaction valued at between $11.22 and $12.16 a share, excluding shares held by Mr. Dell. KKR proposed an all-cash transaction valued at between $12.00 and $13.00 a share, excluding shares held by Mr. Dell. Dell's common stock closed at $9.35 that day. Market observers became more critical of the Company. On November 9, 2012, Citi Research Equities issued a report that set a price target of $8.50. On December 3, 2012, KKR dropped out, saying that it could not 'get [its] arms around the risks of the PC business.' Silver Lake submitted a proposal to acquire the Company for $12.70 per share, up from its previous range of $11.22 to $12.16 per share. The Committee rejected the offer as inadequate. Evercore pitched the Committee on serving as a second financial advisor who could if desired, conduct a go-shop. Evercore's materials included a DCF valuation of the Company with a range of $14.27 to $18.40 per share. Evercore's LBO analysis supported prices of $12.36 to $16.08 assuming sponsor IRR demands of 15% to 25%. The Committee retained Evercore. Silver Lake had informed the Committee that it would increase its proposal to $12.90 per share. It was the Committee's recommendation 'to target a sale price of $13.75 per share, with $13.60 per share as the minimum sale price for agreeing to a deal.' Negotiations ensued, and Silver Lake came back at $13.50, but the Committee stood firm wanting a higher price. The Committee met on February 5, 2013, to consider Silver Lake's proposal. The Committee recommended that the Board accept Silver Lake's offer, which it did. The Merger Agreement provided for (i) a forty-five-day go-shop period that would expire on March 23, 2013. Evercore stated the go-shop process. The stockholders were scheduled to vote on July 18, 2013. On May 31, 2013, the Company filed its definitive proxy statement. On July 17, 2013, the Committee learned from its proxy solicitor that stockholders were not likely to approve the Merger at the special meeting on the next day. Rather than holding the vote, the Committee convened the meeting and adjourned it until July 24. The Buyout Group delivered a revised proposal to the Committee. It called for reducing the requirement for approval to a majority of the unaffiliated stockholders present at the meeting or voting by proxy. In exchange, the Buyout Group proposed to increase the merger consideration by $0.10 per share. The proposal was rejected. On July 24, 2013, the Committee convened the meeting and adjourned it until August 2. On July 30, the Committee rejected the revised proposal as inadequate. The Buyout Group offered a package of additional consideration increasing the total merger consideration to $13.75. The Board approved the new transaction. The PC business was looking extremely bad with both sales and operating income falling substantially. Evercore 'had no confidence in' the projections, so it used primarily market-based metrics to opine that the Final Merger Consideration was fair; the current offer was looking better and better every day as the market deteriorated. The special meeting took place on September 12, 2013, and holders of 57% of the Company's shares voted in favor of the Merger. On October 28, 2013, the Company issued a $0.13 special dividend to all stockholders. The Merger closed the next day. By operation of law, any shares of common stock held by public stockholders who did not seek appraisal and perfect their appraisal rights properly were converted into the right to receive the Merger Consideration, without interest.