The Delaware Supreme Court has overturned a lower court decision that might have made it easier for shareholders to win “appraisal” lawsuits that allow judicial review of the “fair” market value of a corporate takeover.
In an appraisal suit brought by Dell Inc. investors, a Delaware Court of Chancery judge last year ruled that the $24 billion buyout of the company by founder Michael Dell and a private equity partner was not fairly priced, exposing the buyers to additional costs of about $20 million.
But the Supreme Court on Friday found Vice Chancellor Travis Laster erred by giving no weight to the deal price in determining that the fair value of the buyout was $17.62 per share — well above the $13.75 per share paid by Dell and Silver Lake Partners.
A court can decide to give market data no weight, the Supreme Court said, but Laster’s reasons for doing so did not follow from “the court’s key factual findings and from relevant, accepted financial principles.”
“The trial court gave no weight to Dell’s stock price because it found its market to be inefficient,” the opinion said. “But the evidence suggests that the market for Dell’s shares was actually efficient and, therefore, likely a possible proxy for fair value.”
At the time, the Dell deal was the largest buyout since the global financial meltdown. But opposition from shareholders including billionaire Carl Icahn forced the buyers to twice sweeten their offer.
After the deal passed, scores of investors who voted against it sued in Delaware, with some claiming a fair value was as high as $25 per share.
In siding with investors, Laster also found that management-led buyouts inherently undervalue a company, but the Supreme Court said “This was a case where the supposed prerequisite elements for problematic MBOs did not exist.” Among other things, it noted, “rival bidders faced minimal structural barriers to a deal.”
The court remanded the case to Laster to “enter judgment at the deal price if he so chooses” or reach an alternative outcome that “adhere[s] to our rulings in this opinion.”