Michael Dell and Silver Lake Partners underpriced their 2013 US$24.9 billion buyout of Dell Inc. by about 22 percent and may have to pay tens of millions to investors who opposed the deal, a US judge ruled Tuesday.
The ruling, which applies to about 5.5 million shares of the computer maker, is a victory for the specialized hedge funds that have increasingly tried to squeeze more money from mergers using a type of lawsuit known as appraisal, Reuters reports.
The lawsuits allow investors who oppose a deal, such as the bitterly contested Dell buyout, to sue and ask a judge in Delaware, Rhode Island, to determine a fair price.
Activist investor Carl Icahn urged Dell shareholders to vote down the deal and take their case for fair value to court.
Initially, appraisal was sought for about 40 million shares, but the bulk were removed for procedural reasons.
In Tuesday’s ruling, the judge said fair value was US$17.62 per share, not the US$13.75 per share deal price.
With interest, investors who sought appraisal will collect about US$20.84 per share.
The judge said the Dell buyout took advantage of a dip in the company’s stock price, and the firm’s board never determined the intrinsic value before negotiating.
“The original merger consideration was dictated by what a financial sponsor could pay and still generate outsized returns,” he wrote.
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