M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, July 12, 2013

Appraisal ... is it worth it?

For all this talk now flying around about somehow using the appraisal remedy as a free option in the Dell transaction for shareholders who hold to eke out more from the deal, I'll say wait a minute. Slow down.  First things first, pursuing an appraisal is not like heading down to the local pawn store and asking Chumlee "Hey, Chum, how much for my stock?"  

Even if it were that easy, everybody knows that Chumlee and his buddies aren't going to give you the highest price for your stock, just a fair price.  There's a big difference.

A recent opinion in the Delaware (well worth reading...Merion Capital v. 3M Cogent)  suggests how an appraisal could go down:

This is the post-trial decision in an appraisal brought pursuant to 8 Del. C. ยง 262 and arising out of a merger in which a global technology conglomerate and its acquisition subsidiary acquired a biometrics technology company at a price of $10.50 per share. Relying upon a discounted cash flow ("DCF") analysis, the petitioners claim that each share of the biometrics company's common shares was worth $16.26 as of the merger date. By contrast, the respondent contends that the biometrics company's common shares were worth only $10.12 apiece as of the merger date. For the reasons set forth below, the Court concludes that, as of the merger date, the fair value of the biometrics company was approximately $963.4 million or $10.87 per share.

Catch that?  The dissenting stockholders were looking for $16.26, the company argued that $10.12 was fair and in the end, the judge awarded the dissenters $10.87, just $0.37 more than the original merger consideration.  Geez, that's not even splitting the difference between the competing valuations!  Another thing with knowing  -- Merion took almost 3 YEARS to get to this point.  That's three years out of your life for an extra 37 cents per share.  That might be worth it to some investors, but not to many/any retail investors.

Anyway, I am neither for or against anyone pursuing their rights to an appraisal in connection with the Dell deal, just be aware it takes time and it might not even be all that valuable an option in the end.


July 12, 2013 | Permalink | Comments (1) | TrackBack (0)

Wednesday, July 10, 2013

Icahn pushes appraisal

So, it's starting to look like an end game scenario for Dell.  Carl Icahn is now pushing supporters to seek appraisal for their shares.  Here's the thing about seeking an appraisal.  I tell my students its like going to the professor to ask him to regrade your exam.  Sure, you might get a higher grade...but then again... you might get a lower grade too...  It's a long hard slog and for most, that is for those shareholders with relatively small stakes, it usually makes more sense to take the money and move on.  



Here's selected text of the letter from Icahn:


Dear Fellow Dell Stockholders:

We are in the process of perfecting our right to seek appraisal of our Dell shares and we believe that you should also perfect your appraisal rights.  Under Delaware law if a merger occurs and you did not vote for it, you are entitled, through appraisal, to the fair value of your shares as determined by a Delaware court.  We have done a great deal of due diligence concerning the value of Dell, and as we have said in the past, we believe the $13.65 merger price substantially undervalues your Dell shares, and we believe if you seek appraisal, you will receive more.  BUT WHAT IS MOST IMPORTANT ABOUT SEEKING APPRAISAL IS THAT YOU CAN CHANGE YOUR MIND ABOUT APPRAISAL UP TO 60 DAYS AFTER THE MERGER AND STILL TAKE THE $13.65 PER SHARE.  During the "free 60 day period" we believe Dell may wish to negotiate with those that sought appraisal and possibly pay a premium over $13.65 to get them to settle and drop their appraisal claims, as explained below.  To add a new twist to an old saying, "you can have your cake and eat it too".

Those Who Seek Appraisal May Get Lucky

In many merger transactions, if over a certain number of stockholders seek appraisal rights, this gives the purchaser the right to opt out of the transaction and thereby avoid the uncertainty created by appraisal.  However, Michael Dell and Silver Lake did not obtain this opt out right.  This leaves Michael Dell and Silver Lake VERY exposed.  Because they neglected to obtain this right, no matter how many stockholders seek appraisal, if the merger is approved, Michael Dell and Silver Lake are obligated to close or pay a $750 million penalty.  We would certainly like to be present to hear the discussion between Michael Dell/Silver Lake and their lenders as they consider the impact of a substantial exercise by stockholders of their appraisal rights.  Will the lenders use this as an excuse to refuse to close claiming this is a material adverse change, especially in light of the terrible time Dell is having in the PC market as so often stated by Dell themselves?  We think that there is a good chance that none of them will want to face the overhang of a large number of stockholders seeking appraisal.  I therefore believe there will be significant pressure on Michael Dell and Silver Lake to resolve the appraisal rights, and possibly seek a settlement during the "free 60 day period".  Even if you want the Michael Dell/Silver Lake offer to be accepted, unless you believe your shares will tip the balance, why vote for it?  Why not seek appraisal and have the benefit of the "free 60 day period"? Dell may well pay a premium over $13.65 to settle with those seeking appraisal.



July 10, 2013 | Permalink | Comments (1) | TrackBack (0)