In Re: Appraisal of Dell Inc.
In a widely anticipated decision, the Delaware Supreme Court recently issued an opinion reversing several of the findings from a Court of Chancery decision involving the value of Dell Inc. shares. In doing so, the Supreme Court cited principles that had been raised in the earlier expert report and testimony of Analysis Group affiliate R. Glenn Hubbard. An Analysis Group team, led by Managing Principal Bruce Deal and Vice President Michael Cliff, had supported Professor Hubbard in preparing the expert analysis and reports, which had used discounted cash flow (DCF) and other valuation techniques and also had documented the relevance of the deal price in light of the deal process.
In a 2013 management buyout (MBO) by founder Michael Dell and the private equity firm Silver Lake Partners, minority shareholders of Dell Inc. had received $13.75 in consideration per share. Although this represented a significant premium above the pre-merger price of approximately $10 per share, petitioners requested appraisal and sought over $28 per share, based on the DCF analysis conducted by their expert. In its deliberations, the trial court determined that the deal price was not a reliable indicator of fair value because the transaction was an MBO that lacked sufficient bidding competition and took place in an inefficient market. Consequently, the presiding Vice Chancellor gave the deal price no weight in determining fair market value, and instead relied exclusively on his own DCF analysis to reach a valuation of $17.62 per share.
In contrast, Professor Hubbard's report and testimony concluded that the market for Dell stock was efficient, that the deal process was thorough and identified all serious potential buyers, and that the per-share value was no greater than the deal price. Upon appeal, the Delaware Supreme Court found that there was “no rational, factual basis” for a value several dollars above the deal price. In its ruling, the upper court wrote that “[i]n fact, the record … suggests that the deal price deserved heavy, if not dispositive, weight,” which was consistent with Professor Hubbard's opinions.