Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd.
177 A.3d 1
| Del. | 2017Background
- Dell's founder-CEO Michael Dell and Silver Lake proposed a going-private management-led buyout (MBO) in 2013 for $13.75 per share; 38.8 million shares sought appraisal and ~5.5 million were ultimately entitled to appraisal.
- Petitioners (dissenting stockholders) sought statutory appraisal under 8 Del. C. § 262, arguing fair value far exceeded the deal price; their expert DCF: $28.61/share. Dell’s expert DCF: $12.68/share. Court of Chancery awarded $17.62/share based on an exclusive DCF and gave no weight to market price or deal price.
- The Court of Chancery found flaws in the sale process (alleged market inefficiency, private equity bidder focus on LBO IRRs, weak strategic interest, MBO-related dynamics including winner’s curse and management value) and therefore discounted market indicators entirely.
- The Delaware Supreme Court reviewed for abuse of discretion, finding the trial court considered the market data but erred in giving it no weight because the factual findings did not support the sale-process flaws or the market-inefficiency conclusions.
- The Supreme Court reversed in part, affirmed in part, and remanded: it held the trial court abused its discretion in wholly disregarding market indicators and instructed the Court of Chancery on tax, FIN 48, working-capital, restricted-cash, and fee-allocation issues for remand.
Issues
| Issue | Petitioners' Argument | Dell's Argument | Held |
|---|---|---|---|
| Weight to give deal price and pre-signing market price in §262 appraisal | Deal price and market price are unreliable here due to sale-process defects and market myopia; DCF should control | Deal price and market price are relevant and should have been given weight; trial court erred in assigning them no weight | Trial court considered market data but abused discretion by assigning it no weight; market indicators here have substantial probative value and may merit heavy weight on remand |
| Whether private-equity-only process fatally undermines deal price | PE bidders use LBO IRR targets, making deal prices poor proxies for going-concern fair value | Buyer type (PE vs strategic) does not by itself negate deal price reliability | Court rejected a bright-line private-equity carve-out; buyer type alone insufficient to disregard deal price here |
| Trial court’s exclusive reliance on its DCF (and specific DCF inputs: FIN 48, repatriation taxes, terminal tax rate) | Petitioners: trial court wrongly adjusted projections and deducted working capital/restricted cash; its DCF choices supported higher value | Dell: trial court misapplied tax treatments (should deduct full FIN 48, apply repatriation tax deduction, use marginal tax rate in terminal) | The Supreme Court largely upheld many of the trial court’s DCF discretional choices but remanded limited tax issues: require accounting for repatriation tax consequences; FIN 48 deduction decision not an abuse given record; terminal effective tax rate (21%) acceptable as operative reality |
| Allocation of attorneys’ fees and expenses among appraisal claimants | Petitioners (Magnetar): allocation improperly shifted too much expense onto the minority of shares entitled to appraisal; Lead Counsel and T. Rowe advantaged | Dell / Lead Counsel: expenses may be imposed pro rata only on shares entitled to appraisal under §262(j); trial court acted within discretion | Reversed and remanded: trial court must reduce the award against the appraisal class to account equitably for benefits and leverage obtained by a large petitioner (T. Rowe) and Lead Counsel; court must craft a reasoned adjustment on remand |
Key Cases Cited
- Shell Oil Co. v. 607 A.2d 1213 (Del. 1992) (standards for reviewing Court of Chancery findings and abuse of discretion in appraisal contexts)
- M.G. Bancorp., Inc. v. Le Beau, 737 A.2d 513 (Del. 1999) (appraisal valuation discretion and when the court may adopt an expert’s model)
- Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989) (appraisal: value the corporation as a going concern and award pro rata interest)
- Global GT LP v. Golden Telecom, Inc., 11 A.3d 214 (Del. 2010) (§262(h) requires independent judicial assessment; court should take into account all relevant factors and rejects presumptions favoring deal price)
- Cede & Co. v. Technicolor, Inc., 542 A.2d 1182 (Del. 1988) (purpose of appraisal remedy: judicial determination of intrinsic or fair value)
- Tri-Continental Corp. v. Battye, 74 A.2d 71 (Del. 1950) (historical foundations of appraisal remedy and compensation principle)