This recent piece from Forbes provides an interesting look into how Michael Dell scored a huge windfall by opportunistically taking Dell private while the stock was undervalued. Although the Delaware trial court had acknowledged a valuation much higher than the take-private price, the Supreme Court reversed mainly on policy grounds, on the rationale that public M&A transactions deserved heavy deference to deal price. As the article shows, Dell internal documents showed it was worth more.
The Delaware trial court had indeed recognized that Dell’s value exceed the merger price, by about 28%. Michael Dell, along with financial sponsor Silver Lake, had acquired Dell in 2013 for $13.75 per share in cash. In its decision, the trial found the fair value of Dell’s shares as of the merger date to be $17.62, thus implying the deal undervalued Dell by nearly $7 billion. The Supreme Court reversed that award and reinstated merger price as a proxy for fair value, rejecting the trial court’s analysis that, among other things, “investor myopia” and a focus on short-term profit had caused a “valuation gap” between the market price for Dell’s shares and its intrinsic value. Based on the deal terms, Michael Dell’s personal stake of 15.6% of the company was worth about $3.6 billion; as the Forbes article shows, he has managed to parlay that stake into a current value of $39 billion, after deploying other financial devices in related M&A activity by Dell. As Forbes indicates, Michael Dell made a play with a buyout rather than “spending years trying rebuild enthusiasm for the stock.”
The Delaware trial court understood that Dell stock had been experiencing a short-term lull and was prepared to compensate shareholders for losing out on any chance to participate in a longer-term rebound. Although it had been criticized for identifying a valuation gap as large as $7 billion, it appears that the gap was in fact much larger even than that amount, and yet this enormous transfer of wealth from shareholders to insiders nevertheless took place after the Delaware Supreme Court shut the door on the shareholders’ effort to recoup just some of that value.