Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd, No. 565, 2016 (Del. Dec. 14, 2017)
The Delaware Supreme Court reversed in part and remanded to the Court of Chancery for further proceedings the appraisal of Dell Inc. arising from a 2013 management-led buyout by a private equity firm.
The Court of Chancery relied exclusively on a discounted cash flow (DCF) valuation and determined the fair value of Dell shares was $17.62, approximately 28 percent above the merger price of $13.75, which itself represented a 37 percent premium over Dell’s 90-day-average unaffected trading price. The Court of Chancery rejected arguments that the well-run and robust deal process that led to the merger price was the most reliable indicator of fair value, concluding, among other things, that the market for Dell stock was inefficient and that, because the transaction was a management-led buyout, the deal price could not be relied upon.
The Supreme Court reversed, holding that the Court of Chancery’s decision to rely “exclusively” on its own DCF analysis was based on several assumptions that were not grounded in relevant, accepted financial principles. Specifically, the Supreme Court held that the trial court erred because its reasons for failing to give the deal price weight did not follow from the court’s key factual findings, which supported a finding that the “deal price deserved heavy, if not dispositive, weight.” In addition, the Supreme Court expressed doubt regarding the Court of Chancery’s DCF calculation, noting that the facts suggested that a “strong reliance upon the deal price” was warranted with “far less weight, if any, on the DCF analyses” upon remand.
The Supreme Court concluded that, on remand, the Court of Chancery could enter an order deferring to the deal price without further proceedings, or, if it decides to weigh factors other than the deal price, the weight assigned to each factor must be reconciled with the factual record and accepted financial principles.This summary can be found in the March 2018 issue of Inside the Courts.