The Problem With “Dell”aware Business Valuations
A recent decision by the Delaware Court of Chancery has caused the defenders of all things corporate America wants from its courts to complain once again of unfair treatment. While their complaints are misplaced in this particular case, they do raise the question of how Delaware values business entities.
First some background is helpful. In re Appraisal of @Dell, C.A. No. 9522-VCL (Del. Ch. May 31, 2016), decided that the stock of Dell was worth $17.62 per share. The critics of Dell argue that was too much, citing the court’s own praise for the process used to set the merger price of $13.65 per share. They also point out the court’s valuation is substantially above the #Dell market price for a significant period before the merger. Thus, the critics argue that if a fair process and the market itself valued Dell at no more than $13, how could a court know better?
The Dell decision effectively answers its critics by pointing out that the process was still imperfect and that the market price, standing alone, has never been viewed as the “fair value” required by Delaware law. Moreover, if the court was even close to being right in its valuation, then the proponents of the merger got a multibillion-dollar benefit from the merger price. After all, only a very small portion of Dell stockholders involved in the Dell appraisal proceedings will receive the court’s $17.62 per share value. All the other stockholders who were cashed out will get much less, leaving the buyout group as the real winners.