Court Rules Dell, Silver Lake Shortchanged Shareholders 20 Percent In 2013 Buyout

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When Dell Chairman and CEO Michael Dell and Silver Lake Partners took Dell Inc. private in 2013 for nearly $25 billion, they underpaid by more than 20 percent and now may have to pay as much as $15 million to investors who opposed the buyout, a Delaware judge has ruled.

The ruling comes as the expected closing date for Dell's pending acquisition of EMC approaches. The more than $60 billion transaction -- the largest in the history of the IT industry -- is expected to close by the end of October.

One partner executive said he sees the ruling as not much of an impediment to Dell in its move toward acquiring EMC. "It doesn't really give me any pause," said Michael Gray, director of network operations at Tewksbury, Mass.-based Dell partner Thrive Networks. "A juggernaut is a juggernaut. The lawsuit, I think, is just a way to get some more money out of Dell."

[Related: Resurgent VMware Stock Pulls Value Of Dell's EMC Acquisition Higher]

"Worst case scenario, say they don't get the EMC deal done," Gray said. "Even then, both companies press on, and I'd be more concerned about EMC than Dell, honestly. Dell has so much more opportunity, there's still so much they can go out and do. It may erode some confidence, but I don't think anyone can stop this train. The more time that goes on, the more likely [the merger] is to happen. They've already got so much time invested in the deal, they're going to take it to the finish line."

Delaware Vice Chancellor Travis Laster filed his 114-page opinion in the long-running dispute Tuesday, ruling that the fair value of Dell's stock at the time of the buyout was $17.62 per share rather than the $13.75 per share the company and its private equity partners paid.

The suit was brought by investment funds about two years ago as a so-called appraisal case. The appraisal strategy allows investors to realize a price increase in a transaction by voting against it and later arguing in court that the deal was worth more than what the buyers paid.

Shareholders in this case argued that Dell, facing mounting competition in the PC market, was on track for a turnaround and was worth more than twice what Dell and Silver Lake paid in the buyout.

Laster previously disqualified the 27 million shares held by T. Rowe Price from the case, leaving Illinois-based hedge fund Magnetar Capital as the largest holder of Dell stock seeking an "appraisal." With 3.8 million shares, Magnetar could collect about $15 million plus interest, although Dell has the opportunity to appeal the ruling.

A Dell spokesman Tuesday declined to comment on the case.

Attorneys for Dell's lead firm in the case, Richards, Layton & Finger, as well as Magnetar's firm, Grant & Eisenhofer, did not respond for requests for comment Tuesday.

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