As Dell Again Rejects Icahn Bid, This Third Option Looms


Michael Dell has started taking a more public role in his fight to take Dell (NASDAQ:DELL) private, filing a report for investors with the SEC that casts rival Carl Icahn’s bid as unsatisfactory. While Dell’s founder continues to plead his case to shareholders in preparation for a July vote, a third option looms over the transformation of Dell: investors could conceivably have a court appraise the value of shares.

A Gretchen Morgenson column, which appeared in Saturday’s New York Times, called attention to a rarely used but real possibility for Dell’s shareholders. The company is incorporated in Delaware where the Court of Chancery could actually review all the documents pertaining to the Dell buyout and determine what investors ought to be paid for the company’s long-term value. Michael Dell and his team would then have to pay shareholders the amount decided by the court.

For investors who have been wary of getting poor value for their Dell holdings, it may be a superior option. Enthusiasm for Carl Icahn’s proposals remains limited (Dell’s board never got behind any), and Icahn has never delivered the complete terms dictating his buyout proposal. In Michael Dell’s view, there are too many risks involved with Icahn’s bid, and not enough promise the company can make the transformation needed to increase stock value. If appraisal litigation took place, investors might get the best of both worlds, in the form of higher prices and less risk.

Though investors would also have to accept the appraisal at a lower price, Morgenson cites figures that are encouraging for investors. Of 40 cases decided by appraisal, the amount determined by the court was better than the original offer by over 50 percent (median average). Another study showed an average of a 72 percent increase in premiums paid to investors. Of the 46 total cases in the second study, only seven were valued at a price lower than originally offered.

Appraisal litigation can only follow an approval of the Dell bid. Once a majority of shareholders agrees to accept Michael Dell’s offer, it can hire a legal team to ask Delaware’s Court of Chancery to rule on a fair price. If Southeastern’s assessment of Dell stock is correct, investors would receive — true to form — over 50 percent more for their shares than they would accepting the current offer on the table.

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