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 The strategy, known as "appraisal," usually involves an investor who
opposes a buyout price asking a judge to determine the fair value
for the stock. The tactic is also known as "dissenter's rights" and
is meant to protect investors from underpriced buyouts, but some
Wall Street dealmakers say hedge funds use it as a hold-up strategy
to squeeze extra money from mergers.
The question in the Delaware litigation is whether an investor can
come back to seek an appraisal once it emerges that the investor
voted for, not against, the deal. The investor, T Rowe Price, is
seeking an higher price for its Dell stock than the $13.75 per share
offered in the $26 billion buyout led by Michael Dell and Silver
Lake Partners.
Some holdout Dell investors have said fair value of Dell's stock was
up to $25 per share. That could mean hundreds of millions of dollars
are on the line for T Rowe Price and Michael Dell.
T Rowe Price's case began in February 2014 when the company asked
Delaware judge Travis Laster to appraise its roughly 27 million Dell
shares, according to court records. It said it had notified Dell and
had not voted its stock for the deal, satisfying the legal
requirements for appraisal.
However, in an apparent about-face, the money manager reported to
securities regulators in August that it voted for the deal across
its funds. That vote came to light earlier this month, based on a
review of filings by USA Today.
Asked if it had voted for the Dell deal, T Rowe Price did not
directly respond.
"We are aware of a discrepancy in the communication of our voting
instruction on the Dell buyout," the company said in a statement.
One Delaware law specialist said, if regulatory filings are correct,
T Rowe Price's gamble on appraisal may be over.
"I think there is a pretty serious question of their continued
ability to pursue appraisal rights," said Larry Hamermesh, a
professor at the Widener University School of Law in Wilmington,
Delaware.
T Rowe Price is one of scores of Dell holders to seek appraisal
claims, covering more than 38 million shares in total, according to
court records.
Laster is expected to hear arguments Monday on whether many of these
claims should be tossed.
T Rowe Price's appraisal claims were not originally among those
challenged by Dell. But a letter Dell sent to Laster on Friday
regarding "recent factual developments” in connection with T Rowe
Price's appraisals claims suggests that might no longer be the case.
The letter was filed under seal.
One corporate law professor said T Rowe Price will be able to
continue seeking appraisal even if it voted for the deal.
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This is because the law governing appraisal looks not to the vote of
the beneficial holder of the stock, which is T Rowe Price, but to
the record-holder of the stock. For the vast majority of investors,
including T Rowe Price, the record holder was Cede & Co, which
aggregates stock certificates.
Delaware judges have found that so long as an investor's appraisal
claim is covered by an outstanding number of Cede-held shares that
abstained or voted no on deal, the appraisal case can proceed.
Brian Quinn, a professor at Boston College Law School, acknowledged
T Rowe Price's situation looks bad from a public relations
standpoint. "But when you look at the law, I don't think it will
matter," he said.
That law has fueled Wall Street criticism of appraisal, which has
been used by a growing number of hedge funds to wring a bit more
money from a merger.
The funds often seek appraisal using stock they bought after the
record date for determining who casts a ballot on the deal. As
companies see it, the hedge funds are pursuing dissenter's rights
without voting on the deal.
Quinn said that T Rowe Price is distinct from the hedge funds, even
if it is using the law in the same way.
Hedge funds buy their stock at the last minute and often seek a
quick settlement.
T Rowe Price was a long-term holder of Dell stock and a vocal critic
of the price of the Dell deal. Its large appraisal claim is the kind
of action that Delaware judges have said can act as a necessary
deterrent against underpriced deals.
Dell and T Rowe Price's attorney, Stuart Grant of Grant & Eisenhofer,
did not immediately respond to a request for comment.
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Nick
Zieminski)
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