United States: Delaware Supreme Court Reverses Controversial Dell Appraisal Ruling

Last Updated: December 21 2017
Article by Gregory A. Markel and Heather E. Murray

Seyfarth Synopsis:  The Delaware Supreme Court issued its much-anticipated unanimous decision last Thursday in the "long-running appraisal saga" that took place following the 2013 management-led buyout of Dell.  In reversing the lower court's ruling that had awarded stockholder petitioners a 28 percent premium over the deal price, the Court emphasized that the Vice Chancellor erred in relying exclusively on the Chancery Court's own discounted cash flow analysis to reach a fair value calculation, where, as here, the decision to give no weight to either the stock price or the deal price was not supported by the court's key factual findings or by relevant, accepted financial principles.  The Supreme Court suggested that the Chancery Court on remand should instead give "heavy weight" to the deal price due to the compelling "evidence of market efficiency, fair play, low barriers to entry, outreach to all logical buyers, and the chance for any topping bidder to have the support of Mr. Dell's own votes."  


Dell, a computer technology company, announced on February 5, 2013 that the Company's founder and CEO Michael Dell and affiliates of a private equity firm, Silver Lake Partners, would take the company private.  In March 2013, the Blackstone Group and Carl Icahn offered to buy the Company.  In April 2013, the Blackstone Group withdrew from bidding due to an unprecedented 14 percent market decline in PC volume in the first quarter of 2013 and the eroding financial profile of the Company.  Two months later, Mr. Icahn disclosed that he and affiliates had purchased 72 million Company shares and that he planned to nominate his own slate of directors who would launch a self-tender for 1.1 billion shares.  Mr. Dell and Silver Lake Partners increased their proposal and closed the acquisition.  Holders of over 38 million Company shares exercised their appraisal rights.

In the lower court's appraisal decision, it acknowledged that the deal price is "one form of market price data, which Delaware courts have long considered in appraisal proceedings[,]" but the court concluded that several purported flaws in Dell's sale process meant that the deal price should not be afforded any weight and therefore disregarded Dell's deal price and pre-transactional stock price entirely.

The Company argued on appeal, inter alia, that the lower court committed legal error in failing to assign any weight to the deal price because (1) there is no requirement under Delaware law that the deal price be the "best" evidence of fair value in order for it to be given any weight; (2) there is no requirement that the Court of Chancery disregard the deal price entirely if it cannot unequivocally quantify the precise amount of sale process mispricing; and (3) the Court of Chancery also erred in creating what seems akin to a bright-line rule that the deal prices in management-led buyout transactions are distorted and should be disregarded.

In reversing and remanding the Chancery Court's decision, the Delaware Supreme Court acknowledged that due to "the human element in the appraisal inquiry" "[t]here may be no perfect methodology for arriving at fair value for a given set of facts[.]"  Nonetheless, a lower court's conclusions as to fair value will only be upheld "if they follow logically from those facts and are grounded in relevant, accepted financial principles."  The Delaware Supreme Court found that neither of those guideposts were met here.  The record itself suggested that "the deal price deserved heavy, if not dispositive, weight."  The Court of Chancery lacked a valid basis for finding a "valuation gap" between Dell's market and fundamental values because the record showed that analysts had scrutinized Dell's long-range outlook in evaluating the Company and that the market was capable of accounting for Dell's recent M&A activity and its prospects in valuing the Company.  Likewise, the court's complete discounting of the deal price due to the buyer's status as a private equity firm rather than a strategic buyer was error.  As the Court found in its recent decision in DFC Global Corp. v. Muirfield Value Partners, -- A.3d --, 2017 WL 3261190 (Del. Aug. 1, 2017), the notion of a "private equity carve out" stands "on especially shaky footing where other objective indicia suggested the deal price was a fair price."  Nothing in the record suggested that increased competition would have produced a better result than the special committee reached in persuading Silver Lake Partners to raise its bid six times.  While the Court of Chancery felt that more bidders should have been involved in the sale process, the Delaware Supreme Court stated that assessment ignored the important reality that "if a company is one that no strategic buyer is interested in buying, it does not suggest a higher value, but a lower one."    


  1. Reaffirmation that when certain conditions are met the deal price will be deemed strong evidence of fair value.  The Delaware Supreme Court held that where a Company is sold as the result of a robust sale process, the Court of Chancery must give the deal price "heavy weight" in its ruling.  The Court reiterated that it will reject the lower court's methodology for determining fair value if it has not adequately justified its methodology based on the record before it and relevant, accepted financial principles.  The Court also noted that the Court of Chancery in its own opinion suggested that the deal price deserved weight by characterizing the sale process as one that "easily would sail through if reviewed under enhanced scrutiny" and observing that "[t]he Committee and its advisor did many praiseworthy things" that were too numerous to catalog in its opinion. 
  2. Outlined pitfalls in Court of Chancery's reliance on its own DCF analysis.  The Delaware Supreme Court expressed concern with the Court of Chancery's decision to give no weight to Dell's stock price or the deal price and instead to arrive at its own value of nearly $7 billion above the transaction price.  The Court took the lower court to task for settling on a DCF value that "did not reflect a value deemed attractive to the buyers of Dell's [] publicly traded shares" and "did not reflect the value that private equity buyers (including the biggest players such as KKR, TPG, and Blackstone) put on it, as it was too high for any of them to pay."  The Court went on to note that "[w]hen an asset has few, or no, buyers at the price selected, that is not a sign that the asset is stronger than believed—it is a sign that it is weaker.  This fact should give pause to law-trained judges who might attempt to outguess all of these interested economic players with an actual stake in a company's future."
  3. Rejection of expert testimony claiming that management-led buyouts suffer from structural problems that diminish reliability of deal price.  The Court of Chancery focused on three problems purportedly present in all management-led buyouts in finding the deal price was not evidence of fair value: (a) structural issues; (b) the "winner's curse"; and (c) management's perceived value to the company.  The Delaware Supreme Court held that "none of these theoretical characteristics detracts from the reliability of the deal price on the facts presented here."  The main "structural problem" identified did not result from the sale process itself, but from the inherent size and complexity of the Company.  The threat of a "winner's curse," i.e., the phenomenon of a buyer likely overpaying for a company in outbidding incumbent management, who presumably would have paid more if a company were really worth it, can be mitigated, as the Court found was done here, through the provision of extensive due diligence to prospective buyers.  The Court determined that "[t]he more likely explanation for the lack of a higher bid is that the deal market was already robust and that a topping bid involved a serious risk of overpayment."  The Delaware Supreme Court likewise rejected the lower court's presumption that Mr. Dell's value to the Company imposed another impediment to the likelihood of rival bidders succeeding.  The record instead showed that, inter alia, Blackstone and Mr. Icahn did not regard Mr. Dell as essential to their bids, and there was no indication that Mr. Dell would have stopped serving the Company if another reputable buyer had prevailed.

For a copy of the opinion, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Gregory A. Markel
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions