In re Appraisal of Dell Inc.: Delaware Court of Chancery Determines Fair Value Is 28% Higher Than Merger Price Following an Auctioned Arm’s-Length MBOSullivan & Cromwell LLP - June 13, 2016
In In re: Appraisal of Dell Inc., the Delaware Court of Chancery (Laster, V.C.) held in an appraisal proceeding that the fair value of Dell Inc. was 28% higher than the price paid for it by Michael Dell and Silver Lake Partners and approved by a majority of the unaffiliated shares after a lengthy, public and well-run arm’s-length sale process. The Court concluded that the deal price undervalued Dell because there was a significant “valuation gap” between the long-term value of Dell and the market’s short-term focus, and the agreed-upon price was the product of a competition among like-minded financial bidders who were price-constrained by targeted internal rates of return in LBO pricing models. Even though the deal price represented a nearly 30% premium to market and was within the range of DCF values provided by the Dell special committee’s financial advisors, the Court held that a DCF valuation, using the Court’s inputs, produced a better approximation of the “fair value” of Dell than the results of the sales process.