In a detailed opinion, Vice Chancellor J. Travis Laster wrote that under Delaware law, how a beneficial stockholder’s shares are voted is a crucial factor in determining whether it is eligible for judicial appraisal, and the shares beneficially held by T. Rowe Price Associates Inc. funds were voted, through a "daisy chain" of intermediaries, in favor of Michael Dell’s $24.9 billion take-private bid.
T. Rowe Price had steadfastly opposed the go-private deal in public statements, and its shares were a major chunk of the stock involved in the appraisal case connected to the deal, in which the petitioning shareholders are arguing that the computer giant’s stock was worth twice the deal consideration.
But in a complex tangle, T. Rowe Price’s computerized system for voting instructions generated directions for the record holder of the stock, which has the legal right to the vote under Delaware law, to cast it in favor of the merger, according to court records.
The investment firm has called this a “computer glitch” and argued it should be held to its repeatedly stated intention, but Vice Chancellor Laster, who acknowledged the computer instructions were a mistake, rejected that position.
“When an investor elects to use intermediaries, the investor assumes the risk that the intermediaries will err or otherwise fail to act in accordance with the investor’s wishes,” he wrote. “Ironically, by making this argument, the T. Rowe petitioners are effectively contending that [the intermediaries] acted without actual authority (albeit with apparent authority) because of the mistaken conveyance of voting instructions.”
The decision stands to have a big effect on the Dell appraisal case, which went to trial in October, potentially severely limiting how much the computer giant might have to pay out if Vice Chancellor Laster finds the value of its stock was indeed higher than the deal price of $13.75 per share. The ruling is also highly likely to be appealed to the Delaware Supreme Court, and the vice chancellor wrote it is a situation the Chancery Court has never had to address before.
Vice Chancellor Laster also went through a deep analysis of the evolution of Delaware’s appraisal case law, and noted that past decisions that appeared to foreclose on examining evidence over how particular shares are voted should not necessarily apply in the instant case.
In those cases, such evidence was not available, but discovery in the Dell case has shown how T. Rowe’s shares were voted, and it doesn’t follow that the past decisions create an “iron curtain” to keep such evidence out of the proceedings, the vice chancellor wrote.
Dell first broached the issue of T. Rowe Price’s votes when it made a revelation during a routine hearing in May and pushed to take discovery to figure out what happened.
After the discovery process, the computer giant urged the court to throw out T. Rowe Price’s appraisal petition, arguing that the Chancery Court must adhere to the letter of Delaware’s appraisal statute, otherwise it could open the door to shareholders making tactical moves where they publicly oppose a merger and then somehow vote in favor with impunity.
T. Rowe Price countered that the law’s interpretation must go beyond just how shares were voted and consider evidence of intent.
A representative for T. Rowe Price told Law360 on Wednesday they were “in the process of reviewing the opinion and evaluating our options."
Representatives for Dell declined to comment.
T. Rowe Price was also involved in separate unusual statutory issue in the case when Vice Chancellor Laster reluctantly ruled in July that a group of funds technically lost their appraisal rights when they retitled them in the name of the Cede & Co., the Depository Trust Co.'s partner and nominee.
The vice chancellor said that an approach more closely tied to federal law would be "preferable" but noted he was bound to Delaware law.
Meanwhile, the overriding issue of the value of Dell’s shares at the time of the merger is still awaiting a decision from Vice Chancellor Laster. During the five-day trial last fall, petitioning shareholders argued that the deal price should have been about double what it was, at $28.61 per share, meaning Dell left $26 billion in value on the table.
Dell is represented by Gregory P. Williams, John D. Hendershot, Susan M. Hannigan and Andrew J. Peach of Richards Layton & Finger PA and John L. Latham, Susan E. Hurd, Gidon M. Caine and Charles W. Cox of Alston & Bird LLP.
T. Rowe Price and the other petitioners are represented by Stuart M. Grant, Michael J. Barry, Christine M. Mackintosh, Jennifer A. Williams and Rebecca A. Musarra of Grant & Eisenhofer PA.
The case is In re: Appraisal of Dell Inc., case number 9322, in the Court of Chancery of the State of Delaware.
--Editing by Brian Baresch.