A proxy-voting error related to the 2013 leveraged buyout of Dell has turned out to be quite costly for T. Rowe Price as the mutual-fund company announced it will pay $194 million to compensate investors.
A Delaware judge ruled last week that the $24 billion Dell buyout was undervalued, paving the way for shareholders in the tech company who opposed the deal to be paid significantly more money. T. Rowe Price will miss out on any compensation because it mistakenly voted its 31 million shares in favor of the takeover by Dell’s founder and a private-equity partner.
But T. Rowe Price investors will be getting a bump of up to 1.2% in the net asset value of their portfolios, compensating them for the difference of 28% between the buyout price and the judge’s valuation, plus statutory interest.
“T. Rowe Price has a long history of putting our clients’ interests first, and that is what we are doing here,” CEO William J. Stromberg said Monday in a news release.
“The court’s determination that the original buyout consideration offered by Dell was too low validated our original investment view,” he added. “By compensating our clients based on the court’s May 31, 2016, ruling, clients will come out ahead as compared with how they would have fared had they taken the merger consideration.”
As a result of the payout, T. Rowe Price will take a charge of $194 million in the second quarter, reducing after-tax net income by $118 million, or 46 cents a share. Last quarter, it earned $1.15 a share in profits.
“The firm’s financial strength is rock solid, and we will make these payments from available cash,” Stromberg said.
T. Rowe Price was one of the most vocal critics of the Dell buyout. But according to The Wall Street Journal, its default position in merger votes is to support management and, in the case of Dell, its computerized voting system gave instructions to vote “yes” that weren’t manually overridden before the final vote.
