May 2015

On Monday the Delaware Chancery Court heard challenges by Dell to the entitlement of various dissenting shareholders to pursue their appraisal claims.  Dell’s challenges included failures by shareholders to timely and accurately assert their appraisal rights, and a lack of continuous ownership of Dell stock based on purported changes in the nominal ownership of such stock.  The court has yet to rule on these arguments.  But perhaps the most closely watched challenge was the one not heard yesterday: namely, Dell’s challenge to T. Rowe Price’s appraisal claim based on the apparently recent revelation that T. Rowe voted “for” the merger, as we previously posted.  The court indicated that it would take up that issue after Dell proceeds with the targeted discovery that it advised the court it intends to pursue in respect of T. Rowe’s vote.

Also in the course of that hearing, Vice Chancellor Laster heard argument from an individual dissenting shareholder defending his entitlement to proceed and invoking historical case law to support his position.  As an amusing aside, the chancery judge commented that he appreciated hearing citations to court cases going back more than 10 years, validating the fact that appraisal rights are an historical phenomenon dating back to Delaware’s corporations law from the 19th century and were not simply invented in 2007 — when the Transkaryotic case was decided — as some people, particularly in New York, seem to believe.  This was a not-so-subtle swipe at the critics of appraisal arbitrage, who have derided the Delaware courts, and more recently the Delaware state assembly, for failing to limit or eliminate the emerging practice of appraisal arbitrage, as we have repeatedly posted about in recent months.

Based on this Reuters piece summarizing the May 11 hearing and Dell’s brewing challenging to T. Rowe’s ability to proceed, it appears that T. Rowe may try to justify its entitlement to proceed by invoking the arbitrage cases to suggest that there were enough appraisal-eligible shares to allow it proceed, although it clearly faces an uphill battle.  Ordinarily, if a shareholder votes “for” the transaction, it’s game over for its appraisal claim.

As reported in USAToday, T. Rowe Price, the third largest shareholder in Dell, Inc., has been pursuing an appraisal case to recover more than the $13.75 per share merger price. However, it has now come to light that T. Rowe actually voted “for” the 2013 take-private deal by the company’s founder, thus threatening its ability to pursue appraisal. Indeed, one of the key steps in perfecting appraisal rights is voting against the proposed transaction, or at least abstaining from the vote, but in all events refraining from actively voting for the deal outright. Whether T. Rowe is permitted to continue in the case has not yet been decided by the Delaware chancery court.