T Rowe's challenge to Dell deal may fuel critics of 'appraisal'

Mon May 11, 2015 1:09pm EDT
 
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By Tom Hals

WILMINGTON, Del (Reuters) - An increasingly popular tactic used by hedge funds and others to extract more money from buyouts could soon face a major courtroom test when a big investor in Dell Inc may argue that it should be paid a higher price for the 2013 acquisition of the PC maker.

    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 a 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.

DISCOVERY

    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.   Continued...

 
Michael Dell, chief executive of Dell Inc, delivers his keynote speech at the All Things Oracle OpenWorld Summit in San Francisco, California September 25, 2013.  REUTERS/Jana Asenbrennerova