T. Rowe Price Seeks Fair Value for Dell Shares

Will the mutual fund firm's claim that the Dell buyout was underpriced hold up in court?
Katie Kuehner-HebertMay 11, 2015

The practice of “appraisal rights” in buyout deals is headed to the court room.

T. Rowe Price is seeking an appraisal from a Delaware judge to be paid a higher price for its Dell stock than the company received in the 2013 $26 billion buyout led by Michael Dell and Silver Lake Partners, according to Reuters.

T. Rowe Price was offered $13.75 for each of its 27 million Dell shares, but some holdout Dell investors have said fair value of the stock was up to $25 per share, Reuters said.

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The case could be heard as early as Monday, and it features a twist that could weaken T. Rowe Price’s argument.

When T Rowe Price filed the case last February, the company reportedly told the court it had notified Dell and had not voted its stock for the deal, satisfying the legal requirements for “appraisal rights.” Appraisal rights are “the statutory right of a corporation’s minority shareholders to have a fair stock price be determined by a judicial proceeding or independent valuator, and the obligation for the acquiring corporation to repurchase shares at that price,” according to Investopedia.

Earlier this month USA Today published an article contending that T. Rowe Price voted “for” the 2013 buyout across its funds, including the Equity Income Fund, which owned 16.5 million Dell shares; the Science & Technology Fund, which owned seven million shares; the Balanced Fund; and the Equity Index 500 Fund.

“We are aware of a discrepancy in the communication of our voting instruction on the Dell buyout,” the company reportedly said in a statement.

If the August regulatory filings are correct, experts are split on whether that would doom T. Rowe Price’s appraisal case.

“I think there is a pretty serious question of their continued ability to pursue appraisal rights,” Widener University School of Law professor Larry Hamermesh told Reuters.

But Boston College Law School professor Brian Quinn said that the law governing appraisal looks not to the vote of the beneficial holder of the stock, which is T. Rowe Price, but to the record holder of the stock. For the vast majority of investors, including T. Rowe Price, the record holder was Cede & Co., which aggregates stock certificates.

Delaware judges have found that so long as an investor’s appraisal claim is covered by an outstanding number of Cede-held shares that abstained or voted no on a deal, the appraisal case can proceed.

While T. Rowe Price’s situation looks bad from a public relations standpoint, “when you look at the law, I don’t think it will matter,” Quinn told Reuters.

“T. Rowe Price was a long-term holder of Dell stock and a vocal critic of the price of the Dell deal,” Reuters wrote. “Its large appraisal claim is the kind of action that Delaware judges have said can act as a necessary deterrent against underpriced deals.”