US court says Michael Dell underpaid for computer giant
Michael Dell and Silver Lake Partners underpriced their 2013 $24.9bn (€22.3bn) buyout of Dell Inc by about 22pc and may have to pay tens of millions to investors who opposed the deal for the computer maker, a judge in the US state of Delaware has ruled.
The ruling, which applies to about 5.5 million Dell shares, is a victory for the specialised hedge funds that have increasingly tried to squeeze more money from mergers using a type of lawsuit known as appraisal.
Activist investor Carl Icahn urged Dell shareholders to vote down the deal that saw company founder Michael Dell regain control of the business, a major employer in Limerick and Dublin, 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 this week's ruling, Delaware vice chancellor Travis Laster said fair value was $17.62 per share, not the $13.75 per share deal price.
With interest, investors who sought appraisal will collect about $20.84 per share.
The Dell investors presented evidence that fair value was $28.61 per share. The buyers contended that fair value was $12.68.
Dell and a lawyer for the stockholders, Stuart Grant, declined to comment. The ruling can be appealed.
Mr 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 Mr Laster.
The judge dedicated much of the opinion to explaining why deal price was not a fair value indicator, particularly in a management-led buyout. (Reuters)