Michael Dell's $24.9 Billion Buyout and the $17.62 Verdict

On October 29, 2013, Dell Inc. stopped trading on Nasdaq. Its founder, Michael Dell, and the technology buyout firm Silver Lake had bought the company he started in a University of Texas dorm room in 1983, paying public holders $13.75 per share in cash plus a $0.13 special dividend, a transaction valued at roughly $24.9 billion. It was the largest leveraged buyout since the financial crisis, and it took nine months, two adjourned shareholder meetings, a rewritten voting standard and a public war with Carl Icahn to get there.

Three years later, in May 2016, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery ruled that the fair value of those same shares at closing had been $17.62, about 28% above the $13.75 merger consideration. The Delaware Supreme Court reversed him in December 2017. The company was never worth two numbers at once, so one of those two judgments about a heavily lawyered, heavily banked, textbook-looking sale process was wrong.

That is the tension this case turns on. Every structural protection the market had invented for a conflicted buyout was present at Dell: an empowered independent committee with its own counsel, two financial advisers, an outside consultant building rival forecasts, a 45-day go-shop, a majority-of-the-minority vote, and a founder who agreed to roll his stock at a discount. The question is whether that architecture was capable of producing a fair price when every bidder in the room was solving the same equation, and what the answer says about buying a company from the person who runs it.

A $14 billion transformation the tape refused to price

Between 2010 and 2012 Dell spent approximately $14 billion acquiring eleven businesses, buying its way from a commodity PC vendor toward an enterprise systems and services company. Management believed the work was essentially done and that the earnings would follow once the acquisitions were integrated, a view Michael Dell repeated to analysts through 2012.

The market did not agree, and the gap was not marginal. In a January 2011 sum-of-the-parts exercise, management valued the company at $22.49 per share by line of business and $27.05 by business unit, according to the trial record in the later appraisal case. The stock traded near $14 over the same period, and fell through the first half of 2012 from roughly $18 to about $12.

Management's July 2012 board presentation quantified the disagreement precisely. Industry revenue multiples implied an enterprise value of about $40 billion, against which management identified a valuation discount of roughly $25 billion driven by what it called execution and transformation doubts, and argued that implied enterprise value should climb toward nearly $70 billion. Management also noted that simply projecting the trailing twelve months of free cash flow into perpetuity produced a share price above $30, which meant the market was pricing free cash flow to decline about 20% a year forever.

Why analysts thought the discount was earned

The other reading of that gap is that the market had simply looked at the numbers. By the third-quarter results reported in November 2012, Dell had missed consensus revenue in six of the previous seven quarters. Second-quarter fiscal 2013 revenue fell 8% and earnings per share fell 13%; third-quarter revenue fell 11% and earnings per share fell 28%.

Sell-side research was blunt about the cause. A Goldman Sachs analyst wrote that Dell's guidance was likely too aggressive on both revenue and margin, and a Bernstein analyst noted that the company's cost-cutting programs had historically been difficult to monitor, with no clear separation between industry-wide component price declines and genuine Dell-specific savings. The consensus earnings-per-share estimate for the year fell from $2.02 in August 2012 to $1.66 by February 2013, and to $1.00 by June 2013.

Both readings can be true, and the case never resolves cleanly because they were. Dell's near-term results were genuinely deteriorating, and the enterprise assets it had bought were genuinely worth more than a PC multiple. The buyout is best understood as a bet on which of those two facts would dominate, placed by the one person who knew the business best.

The founder's argument for the exit

Michael Dell put the case to his own board on December 6, 2012, and the reasoning is the most revealing document in the record. He listed what he would do as a private owner: compete harder in global PCs, hire thousands of mid-market enterprise salespeople, push into China, shift from configure-to-order to build-to-stock, and continue the move toward IT solutions.

Each of those initiatives, he said, would be poorly received by public markets because each would dramatically reduce near-term profitability. He added that public shareholders were better served by a transaction because they would capture part of the upside without bearing the execution risk. It is a coherent argument, and it is also the argument every management buyer makes; the Chancery record later noted that the Boston Consulting Group advised the committee that the only benefits genuinely unavailable to a public Dell were cheaper access to offshore cash and, plainly stated, buying the company low and selling it high.

Four directors, an eighteen-month standstill, and a two-name pipeline

The process began, unusually, outside the boardroom. In June 2012 Staley Cates of Southeastern Asset Management, then Dell's largest outside holder, asked Michael Dell whether he would consider a management buyout. In August, Egon Durban of Silver Lake raised the same idea. Michael Dell met his friend George Roberts of KKR on August 11 and 13, and told lead independent director Alex Mandl on August 14 that he wanted to pursue it.

The board moved quickly and correctly on governance. On August 20, 2012, it formed a special committee of four directors: Mandl, a former president and chief operating officer of AT&T, as chair; Laura Conigliaro, a retired Goldman Sachs technology analyst; Janet Clark, then chief financial officer of Marathon Oil; and Kenneth Duberstein, a former White House chief of staff and lead independent director at Boeing. None had financial ties to Michael Dell. The committee hired Debevoise & Plimpton as counsel and J.P. Morgan as financial adviser, and by August 30 the board had granted it authority not just to review a transaction but to solicit alternatives, negotiate, and refuse to proceed at all.

Management buyout (MBO)

A transaction in which the company's own senior management, usually with a private equity partner, buys the company from its public shareholders. The conflict is structural rather than incidental: the same people who set the projections, control the information, and are needed to run the business afterward are also the buyers, and every dollar of price increase comes out of their own pocket. See our primer on how a management buyout is structured.

The consequential decision came next, and it was procedural. In the first week of September the committee signed confidentiality agreements with Silver Lake, KKR and Michael Dell. The sponsor agreements carried eighteen-month standstills barring them from proposing any transaction or seeking to influence the board without permission. Michael Dell's agreement went further, prohibiting him from working with anyone other than Silver Lake or KKR without the company's written approval, and from talking to debt financing sources without the committee's consent.

The advice that shaped the auction

On September 14, 2012, J.P. Morgan told the committee what a sale would look like. Dell could keep roughly $5.9 billion of existing debt in place, about 65% of the total, which materially reduced the new financing a buyer needed. The bankers judged KKR and Silver Lake the best qualified acquirers and put the probability of strategic buyer interest at low, while warning that confining talks to two sponsors would create a lack of competition.

The committee accepted that trade. It decided not to contact other sponsor groups until it had an offer in hand, and it never contacted Southeastern, the shareholder that had started the whole thing. The logic was defensible in the moment: leaks were already a risk, and a public auction of a deteriorating PC business could damage the asset. The consequence was that a company whose bankers had just described its own market check as inadequate spent five months negotiating with a shrinking field.

The field shrank fast. KKR withdrew on December 3, 2012, saying it could not get its arms around the risks of the PC business. Mandl then invited TPG, on the reasoning that its investment in Lenovo gave it a view on value PCs; TPG toured the data room, met Michael Dell at his home, and passed on December 23, telling the committee the cash flows attached to the PC business were too uncertain to build an investment case. From that point there was exactly one bidder.

The BCG forecasts and the argument over cost savings

By November 2012 the committee no longer trusted management's numbers. Conigliaro wrote that the committee might need a very conservative forecast, possibly one it would once have called close to worst case. Chief financial officer Brian Gladden conceded in writing that management projections looked optimistic against sell-side estimates. The committee hired Boston Consulting Group to build an independent forecast, an unusual step and among the strongest features of the whole process.

BCG delivered on January 2, 2013 and refined the work on January 15. It produced a Base Case more pessimistic than management's September projections and in line with analyst reports, then two upside variants keyed to a cost-savings program. Management had announced a $2 billion savings initiative in June 2012 but had privately identified $3.3 billion, holding back the difference as a cushion. BCG modeled the company capturing 25% of those savings and 75% of them, and told the committee that the 25% case was the most reasonable given Dell's history with past cost programs.

The three cases share an identical revenue line and diverge entirely on cost execution, which is why the fight over the buyout was never really a fight about the top line. It was a fight about whether Dell could take out $3.3 billion of cost, and the committee's own consultant said probably not most of it. Management's earlier July and September forecasts, which the committee had called unrealistic and overly optimistic, were set aside in favor of BCG's.

$14.13 and the ceiling a leveraged buyer cannot cross

The most important number in this case never appeared in a press release. On October 9, 2012, J.P. Morgan showed the committee two analyses built from the same September Case projections. Run as a discounted cash flow, Dell was worth $20.00 to $27.00 per share. Run through a standard leveraged buyout model, a financial sponsor could pay at most about $14.13, and only if it assumed further recapitalizations, because above that price it could not clear a 20% five-year internal rate of return.

The table is the whole problem in one exhibit. A discounted cash flow solves for what an asset is worth; a leveraged buyout model solves for what a buyer can pay and still hit a target return, given how much debt the company can carry. The same projections produce very different answers because the two models solve for different variables, and the buyout answer is capped by leverage capacity and the sponsor's hurdle rate rather than by the business.

Goldman Sachs, advising management on the sponsor presentations, ran the same exercise and got about $16.00 at a 20% return. Evercore, pitching the committee in January 2013, produced a DCF range of $14.27 to $18.40 and an LBO range of $12.36 to $16.08 at 15% to 25% IRRs. Three banks, three models, one consistent message: the sponsor price and the going-concern value were different numbers, and everyone in the room knew it.

Mandl's $13.75 target and a rollover repriced twice

The negotiation itself was real, and the committee was not passive. Silver Lake opened on October 23, 2012 at $11.22 to $12.16 a share, moved to $12.70 on December 4, and to $12.90 on January 15, 2013. On January 18 Mandl told the board the committee would target $13.75 with $13.60 as its floor.

Durban then called Mandl and offered $13.25. Mandl said it was inadequate. Durban threatened to walk, and Mandl, by his own trial testimony, told him to go ahead. Silver Lake came back at $13.50 and the committee held. That is a committee negotiating hard, and it matters to any fair assessment of the process.

The deadlock broke because Michael Dell paid for the increase himself. To let Silver Lake raise its price for the public float without diluting its own returns, he agreed to roll his roughly 16% stake into the new company at $13.36, below what public holders would receive, and to invest up to $500 million of new cash, with an affiliate committing a further $250 million. Silver Lake then offered $13.65, called it best and final, and the committee accepted on February 5, 2013.

The fairness opinions and the question nobody asked

J.P. Morgan and Evercore both opined on February 5, 2013 that $13.65 was fair to unaffiliated stockholders. The supporting ranges are worth reading carefully. J.P. Morgan's discounted cash flow on the September Case ran $15.50 to $21.75 and on the BCG 75% Case $15.00 to $21.25, both entirely above the deal price; its BCG 25% Case DCF ran $12.00 to $16.50 and its BCG Base Case DCF $10.50 to $14.25, so the price sat inside those two but well beneath their midpoints. Only the Street low case, at $10.63 to $13.87, put $13.65 near the top of a range.

A fairness opinion asks whether a price falls within a defensible range, not whether it is the best achievable number, which is why one can be honestly delivered on a price near the bottom of the analysis. The committee then disclosed something remarkable in its proxy: it had not sought to determine a pre-merger going-concern value for the stock at all. It cited the certainty of cash, the roughly 37% premium to the $9.97 ninety-day average, the roughly 25% premium to the $10.88 unaffected close on January 11, 2013, and the collapsing Street consensus. Those are all reasons to accept an offer. None of them is an estimate of what the company was worth, and the distinction between the two is exactly what a fairness opinion does and does not deliver.

Paying for it

The committed package behind the deal was assembled by BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets, alongside an unusual strategic lender.

These are commitments rather than funded amounts, and the revolving and receivables facilities were not fully drawn at closing, so the package deliberately exceeds the cash required; the balance of the roughly $24.9 billion came from Michael Dell's rolled equity and $750 million of new cash, Silver Lake's equity check, Dell's own balance-sheet cash, and about $5.9 billion of existing debt left in place.

The $2 billion from Microsoft, structured as 7.25% unsecured subordinated notes rather than equity, is the most commented-upon line and the least financially important. It was junior capital from a partner with an obvious interest in keeping the largest Windows hardware vendor solvent and independent, and it bought Microsoft no ownership and no board seat. Its real function was signaling: a strategic anchor made the credit story easier to sell at a moment when two private equity firms had already walked away from the same asset.

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Sixty calls and one silence that mattered

The merger agreement gave the committee a 45-day go-shop running to March 23, 2013, with a $180 million break fee for a superior proposal produced during that window against $450 million afterward, and a one-time match right for the buyout group. Evercore was hired to run it, on a $400,000 monthly retainer plus 0.75% of any incremental value it generated, capped at $30 million.

Go-shop

A post-signing window in which a target's bankers actively solicit competing bids, usually paired with a reduced break fee for any deal that emerges from it. It is a market check performed after the seller has already committed to a price, and it is used when a pre-signing auction was impossible or undesirable. Evercore's own materials told the committee that of 137 go-shops on deals above $100 million since 2005, only 16, about 12%, produced a superior offer. Our guide to how go-shop periods work in M&A walks through the mechanics.

Evercore reached sixty parties within ten days. The most consequential call was the first one: Hewlett-Packard, Dell's closest peer, which Evercore told a combination could deliver $3 billion to $4 billion of annual cost synergies. HP signed a confidentiality agreement on February 24 and then did nothing. It never entered the data room and never submitted an indication of interest.

HP's silence is the strongest single argument for the deal price. A strategic acquirer with synergies does not face a sponsor's IRR ceiling, and the buyer best placed to see a mispricing declined to look. The counterargument, which the Chancery court later accepted in part, is that a merger of the two largest struggling PC vendors carried integration risk large enough to deter engagement even at a genuine discount, so HP's absence proves less than it appears.

Blackstone's ballroom, then the letter

Blackstone engaged seriously. More than 460 people associated with the firm accessed the data room; roughly forty Blackstone staff and twenty Dell employees packed a Texas ballroom so large that directions had to be given over a microphone. Michael Dell later said he had spent more time with Blackstone than with any other participant.

On March 22, 2013, Blackstone proposed that shareholders elect either at least $14.25 per share in cash or a stock package in a new entity valued at $14.25, with Morgan Stanley providing a highly confident letter on financing. Evercore and J.P. Morgan valued it at face. The committee determined that Blackstone qualified as an excluded party, capping the break fee against it at $180 million.

Twenty-seven days later it was over. On April 18 Blackstone withdrew, citing an unprecedented 14% decline in first-quarter PC volumes, the steepest on record, and pointing in its withdrawal letter, as reported by Forbes, to "the rapidly eroding financial profile of Dell," noting that the company had cut its current-year operating income projection from $3.7 billion to $3.0 billion since the bid was submitted.

There is a footnote to that exit which matters. Blackstone had never been given BCG's forecasts. It was diligencing Dell against management's numbers and a collapsing IDC industry outlook, and first saw the committee's independent projections when they appeared in the preliminary proxy. Whether an interloper armed with the BCG 25% Case would have stayed is unknowable, and it is the sharpest available criticism of an otherwise well-run go-shop.

Icahn's arithmetic

Carl Icahn arrived on March 5, 2013 with a leveraged recapitalization proposal: borrow enough to pay a $9 per share special dividend, leaving a stub he estimated would trade near $13.81, for aggregate value of about $22.81. Evercore's internal reaction, recorded in the trial exhibits, was that the total looked crazy because the stub value was far too high, but that Icahn otherwise had the right idea and the proposal was smart.

Leveraged recapitalization

A transaction in which a company borrows heavily and distributes the proceeds to shareholders as a special dividend or buyback, rather than selling itself. Holders receive cash now and keep an equity stub in a more leveraged company, so they retain the upside a sale would hand to the buyer. It is the classic activist counter to a take-private, and its weakness is that the stub is worth whatever the market decides after the debt is on.

Icahn kept restructuring the idea. On March 22 he offered stockholders $15.00 in cash capped at $15.6 billion in aggregate, with the rest rolling one-for-one into a new entity; Evercore valued the package at $13.37 to $14.42. On May 9 he joined forces with Southeastern to propose $12.00 in cash or $12.00 of new stock issued at $1.65 a share, plus a slate of directors to replace the board. On June 19 he moved to a self-tender at $14 for roughly 1.1 billion shares, financed by $5.2 billion of lender commitments announced on July 1, and on July 12 he added a warrant, one for every four shares tendered, to buy a share at $20 within seven years.

The comparison flatters the buyout group less than the outcome suggests. Two of the four whole-company alternatives carried headline values above $13.65, and the committee's own bankers priced Icahn's March structure at up to $14.42. What killed them was not price but deliverability: Blackstone walked on the business, and Icahn's structures left holders with a stub whose value nobody could underwrite. In a deteriorating asset, certainty of cash is worth real money, and the committee was entitled to weigh it. Whether it was worth the whole gap is the question the Delaware courts would spend four years arguing about.

Southeastern's $23.72 and the coalition it built

Southeastern went public on February 8, 2013, three days after signing, with a letter calling $13.65 a price that grossly undervalued the company. Its own sum-of-the-parts arrived at $23.72 per share, built by valuing each segment separately and, critically, by capitalizing the roughly $7 billion Dell had spent on acquisitions as though it had at least broken even.

That method is aggressive, and its aggression is the point. If the acquisitions were worth what was paid, Dell was worth far more than the market said; if they were not, Michael Dell had destroyed value and was now buying the company at a price his own destruction had helped create. The valuation professor Aswath Damodaran of NYU Stern took Southeastern's logic seriously while declining to endorse the number, ran his own sum-of-the-parts and cash flow analysis to $16.38 a share, and wrote in his Musings on Markets analysis that at $13.65 Michael Dell was "getting a bargain, but I don't think it is a huge one." That verdict, from a source with no position in the outcome, lands within a dollar and a half of where the Court of Chancery would land three years later.

The opposition consolidated over the spring. Icahn built a position and, on June 18, bought 71,657,828 shares directly from Southeastern at $13.52, roughly $969 million, lowering his average cost and concentrating the resistance in one aggressive holder. Many value investors, including T. Rowe Price, opposed the deal on the same thesis Michael Dell himself had been arguing for two years: that the market was mispricing the non-PC businesses.

Two adjournments, a bump, and a rewritten standard

The special meeting was set for July 18, 2013, with a June 3 record date. On July 17 the proxy solicitor told the committee the merger would lose. What followed is the part of this case that permanently changed how practitioners think about the majority-of-the-minority device.

Majority-of-the-minority

A condition requiring that a conflicted transaction be approved by a majority of shares held by stockholders unaffiliated with the buyer, separately from the statutory vote of all shares. Its protective force depends entirely on the denominator. Requiring a majority of all unaffiliated shares outstanding counts every non-voter as a no; requiring a majority of unaffiliated shares actually voted counts only those who show up.

Dell's original agreement used the demanding version, and by mid-July that choice was about to kill the transaction. Retail holders vote sparsely, index funds vote late, and a merger arbitrage base that had accumulated since February still had to be converted into ballots. The sixteen days that followed are the compressed core of the case.

The final package was $13.75 in cash plus a $0.13 special dividend, total merger consideration of $13.88, with a guaranteed $0.08 third-quarter dividend taking the value of the package to $13.96, and at least $350 million more for stockholders in aggregate. Michael Dell again funded the increase personally, agreeing to cut the value attributed to his rollover shares from $13.36 to $12.51.

The new record date is the sharpest object in the case. Moving it to August 13 disenfranchised anyone who had sold since June 3 and enfranchised the merger arbitrageurs who had bought in during the fight, holders with no interest in Dell's five-year enterprise strategy and every interest in a deal closing. Changing the voting standard and the electorate at the same time, in exchange for $0.10, converted a shareholder protection into a negotiating chip.

September 12: the numbers behind the win

Institutional Shareholder Services, Glass Lewis and Egan-Jones had all recommended a vote in favor on July 8. Icahn abandoned the fight on September 9, saying it would be almost impossible to win on September 12, withdrawing his director slate, and announcing he would seek appraisal instead. He later dropped that too, and on his own account left with a profit of roughly $70 million on a six-month position.

The vote passed on both tests, and neither was close to a landslide. Holders of 1,013,326,409 shares voted for and 399,608,525 against, with 39,610,350 abstaining, which is about 57% of shares outstanding and roughly 70% of the shares present. Stripping out the buyout group and its affiliates, 733,998,074 unaffiliated shares voted for against 399,608,525 opposed. Under the original standard, where abstentions and non-votes counted against, it would have squeaked through with just over half of the unaffiliated shares outstanding; under the standard purchased for $0.10, it carried comfortably. Dell paid the $0.13 special dividend on October 28 and the merger closed on October 29, 2013.

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The petitioners who were left, and the ones who voted wrong

Stockholders who did not vote in favor of the merger, and who followed the statute's procedural steps exactly, could ask the Delaware Court of Chancery to fix a price instead of accepting $13.88. Investors initially sought appraisal on close to 40 million shares.

Appraisal rights

A statutory remedy under Section 262 of the Delaware General Corporation Law allowing stockholders who did not vote for a merger to ask the Court of Chancery to determine the fair value of their shares, payable in cash with statutory interest. The court values the company as a going concern at the effective time of the merger and must exclude any value arising from the merger itself. Both sides bear the burden of proving their valuation, and no presumption favors either.

The remedy is procedurally unforgiving, and Dell produced its most expensive demonstration of that. T. Rowe Price had opposed the merger vocally and held roughly 31 million shares across funds and client accounts, but its voting instructions were submitted in favor. On May 11, 2016 the court held that the error made those shares ineligible for appraisal. In June, after the valuation ruling landed, T. Rowe Price announced it would pay up to approximately $194 million to compensate affected clients for the difference plus statutory interest. The disqualification left 5,505,730 shares in the case.

$17.62, and how it was built

The trial ran four days, with more than 1,200 exhibits and a pre-trial order of 542 paragraphs. The experts were not close: Professor Bradford Cornell for the petitioners opined $28.61 per share; Professor Glenn Hubbard for the company opined $12.68. Two eminent valuation scholars using similar principles arrived at answers 126% apart, roughly $28 billion of value across Dell's 1.77 billion shares.

Vice Chancellor Laster built his own answer from the pieces he found credible. He accepted two forecasts: Hubbard's adjusted BCG 25% Case, updated for the August 2013 IDC data and therefore likely conservative, and Hubbard's adjusted Bank Case, the September 2013 projections Silver Lake gave the lending banks and therefore likely optimistic. He set a weighted average cost of capital of 9.46%, using a 3.31% risk-free rate, a beta of 1.31, a 6.11% supply-side equity risk premium, a 4.95% cost of debt and a 75% equity weighting, with a 2% perpetuity growth rate he said was arguably too low. On 1,765,369,276 fully diluted shares, the conservative forecast produced $16.43 and the optimistic one $18.81. Having no reason to prefer either, he weighted them equally and arrived at $17.62.

The reasoning behind the number is more interesting than the number. Laster held that Dell's sale process would sail through a fiduciary review, that the committee had done many praiseworthy things, and that no director could be held liable. He then explained why passing that test is not the same as proving fair value: a liability case asks whether directors behaved reasonably, while an appraisal asks only what the company was worth, so a process can be blameless and still leave money on the table.

Three findings drove the result. First, the price came out of an LBO pricing model rather than a valuation: Silver Lake's Durban testified he was not concerned at all with the intrinsic value analysis of the business, and J.P. Morgan's banker confirmed that big private equity firms use essentially the same models, hurdle rates and returns, so competition between them turns on willingness to sacrifice IRR rather than on intrinsic value. Second, there was a genuine valuation gap driven by the market's focus on quarterly results. Third, there was no meaningful pre-signing competition, and Michael Dell's own position as a net buyer, contributing an extra $250 million for each $1 of price increase if he wanted to hold 75%, made him an unhelpful ally to any interloper.

The reversal, and what survived it

On December 14, 2017 the Delaware Supreme Court reversed in part and remanded. Writing for the court, Justice Karen Valihura held that Dell's stock traded in a liquid and efficient market with more than thirty analysts covering it, rejected the trial court's investor-myopia theory, and followed its own DFC Global decision in finding no rational connection between a buyer's status as a financial sponsor and whether the deal price is fair. The court found that on this record the deal price deserved heavy, if not dispositive, weight, and remanded with discretion to enter judgment at the deal price or to take another route.

The case never went back to trial. Dell settled the remaining claims in 2018, paying roughly $70 million in May and approximately $30 million in July, according to its own quarterly filing, which means the final answer to what Dell was worth in 2013 is a negotiated number rather than a judicial one.

Two doctrinal things survived. Dell and DFC Global together made deal-price deference the strong default in Delaware appraisal, sharply reducing the appraisal-arbitrage trade that had grown through the mid-2010s. But the Supreme Court reversed on the weight given to market evidence, not on the underlying finance. It did not hold that an LBO model measures fair value, and it did not disturb the finding that the committee never determined a going-concern value. The disagreement between the two courts is about which evidence a judge should trust, and it remains genuinely unresolved.

EMC, and a $67 billion answer to the PC problem

Whatever the courts thought, Michael Dell acted immediately like a man who believed the enterprise thesis. In October 2015, two years after going private, Dell agreed to buy EMC Corporation for approximately $67 billion, the largest technology acquisition on record at the time, closing on September 7, 2016.

The strategic logic was the buyout thesis executed at scale and with borrowed money no public Dell would have been permitted to raise. EMC brought enterprise storage and, more importantly, roughly 81% of VMware, the virtualization software company that was the fastest-growing and most valuable asset in the combination. The transformation Michael Dell told his board would be punished by public markets was completed in private, financed by the ability to lever a private balance sheet far beyond what the public market would have tolerated.

The tracking stock and the road back to the NYSE

Financing EMC required a currency, and Dell invented one. Part of the consideration to EMC shareholders was a Class V tracking stock, listed as DVMT, designed to track the economics of Dell's VMware stake without giving holders a claim on Dell itself.

Tracking stocks trade at a discount to the assets they track, and DVMT did, which created both a problem and an opportunity. On July 2, 2018, Dell announced it would retire the tracking stock by exchanging it for cash or new Class C shares. Shareholders, including Icahn again, objected that the exchange undervalued their holdings; the terms were improved and the deal was approved on December 11, 2018. Dell paid $14.0 billion in cash and issued 149,387,617 Class C shares, a package worth roughly $23.9 billion, and on December 28, 2018 Dell Technologies began trading on the New York Stock Exchange under the ticker DELL, opening at $46.

The round trip is worth stating plainly. Michael Dell took a company private in 2013 arguing that public markets could not price a transformation, spent five years and $67 billion executing that transformation with private leverage, and then returned to the same public markets, retaining control through a dual-class structure that the pre-2013 Dell never had.

What the buyers actually made

The economics vindicated the buyers on almost any measure. By late 2014, roughly a year after closing, Michael Dell and Silver Lake were reported to be sitting on a paper gain of at least 90% on their equity. Michael Dell's stake in Dell Technologies was worth tens of billions of dollars by 2021, against a rolled stake and $750 million of cash committed in 2013, and Silver Lake's eventual returns on the Dell complex rank among the largest single-deal outcomes in private equity history.

That outcome is not, by itself, proof that $13.88 was too low. Appraisal law measures value on the closing date and excludes value created by the transaction, and much of what followed, the EMC combination, the VMware ownership, the leverage only a private company could carry, was created afterward by decisions the public company had not made. The honest reading is narrower and more damning of the process than of the price: the returns confirm that the risk transferred at closing was smaller than the market believed, which is precisely what the committee's own bankers had modeled and precisely what the committee declined to value.

The case that this was as good as an MBO process gets

The defense is strong and it is mostly procedural. An empowered committee of four unconflicted directors ran the process for nine months, hired its own counsel and two banks, commissioned an independent consultant to build forecasts because it distrusted management's, and rejected management projections it judged unrealistic. It refused $13.25, refused $13.50, called a walk-away bluff, and forced the founder to fund the increase by rolling his own shares below the public price, twice.

It then ran a real go-shop that put Dell in front of sixty parties including its largest competitor, produced two live alternatives, and reimbursed a bidder's diligence expenses to keep it in the game. Michael Dell was contractually required to explore working with other bidders and, on the trial record, was willing to do so; Blackstone and Icahn both concluded they preferred to replace him. Laster himself said the process would sail through fiduciary review and that no director could be held liable. Measured against the era of management bidding that began with the RJR Nabisco buyout and its boardroom auction, this was close to the state of the art.

The case that the process could not have found fair value

The prosecution is structural, and it does not require anyone to have behaved badly. The committee's own bankers told it in September 2012 that limiting the field to two sponsors would create a lack of competition, and then it lost both of them and negotiated for five months against a single bidder. It never contacted Southeastern, the holder that had proposed the idea and would soon argue the company was worth $23.72.

Every price in the pre-signing phase came out of an LBO model that solved for a 20% to 25% return, and the same J.P. Morgan projections that produced $20.00 to $27.00 in a DCF produced a $14.13 ceiling in that model. The committee negotiated toward the ceiling and hit it, then disclosed that it had never tried to establish a going-concern value at all, which means it bargained without knowing what its alternative to a deal was worth. Blackstone diligenced Dell without the BCG forecasts. And when the vote was about to fail, the buyers bought a change in the voting standard and a new electorate for $0.10 a share.

The verdict the record supports

Two things are settled. The process was not corrupt, and Delaware has now spoken twice, with the higher court's answer controlling: on this record, the deal price is strong evidence of fair value, and a company's market price cannot simply be waved away as myopic. Anyone arguing that Dell was stolen at $13.88 is arguing against the Delaware Supreme Court.

Two things are not settled, and pretending otherwise would misrepresent the record. The reversal was about the weight a judge owes market evidence, not about the finance; the finding that every bid in the pre-signing phase was an IRR output rather than a valuation went undisturbed, and no court has held that a sponsor's bid ceiling is a company's worth. Nor did the Supreme Court's efficient-market reasoning address what the trial court found most troubling, which is that the seller in a management buyout never calculated the value of the thing it was selling.

The most defensible verdict is narrow. The board did not sell Dell too cheaply in the sense of breaching a duty, and it extracted close to the maximum that the only category of buyer it had could pay. It probably did sell too cheaply in the sense that the price reflected the constraints of leveraged finance rather than the value of the business, and the committee's decision never to determine a going-concern value meant nobody in the room could have known the difference. That is not a failure of independence, and process quality is not the same thing as price discovery. It is what happens when the buyer of last resort and the buyer of first resort are the same man, and everyone bidding against him is running the same model.

1. 1Dell Inc. and Silver Lake, "Dell Enters into Agreement to Be Acquired by Michael Dell and Silver Lake" (February 5, 2013).
2. 2Delaware Court of Chancery, In re Appraisal of Dell Inc., C.A. No. 9322-VCL, Memorandum Opinion of Vice Chancellor J. Travis Laster (May 31, 2016).
3. 3Richards, Layton & Finger, "Dell Inc. v. Magnetar Global Event Driven Master Fund Ltd." (December 14, 2017).
4. 4Harvard Law School Forum on Corporate Governance, "Analysis of Delaware Supreme Court's Dell Appraisal Decision" (December 19, 2017).
5. 5CNBC, "Court rules fair value of Dell buyout was $17.62 per share" (May 31, 2016).
6. 6Southeastern Asset Management, "Southeastern Asset Management Opposes Current Transaction for Dell" (February 8, 2013).
7. 7Aswath Damodaran, "Michael Dell's Conflicted Buyout", Musings on Markets (February 2013).
8. 8Forbes, "Blackstone Ditches $25 Billion Dell Deal Amid PC Declines" (April 19, 2013).
9. 9AllThingsD, "Carl Icahn Ends Effort to Take Control of Dell" (September 9, 2013).
10. 10AllThingsD, "Nearly 70 Percent of Dell Shareholders Voted to Go Private" (September 18, 2013).
11. 11Dell Inc. and Silver Lake, "Dell Completes Go-Private Transaction" (October 29, 2013).
12. 12T. Rowe Price, "T. Rowe Price to Compensate Clients for Dell Voting Error" (June 6, 2016).
13. 13TechCrunch, "$67 billion Dell-EMC deal becomes official today" (September 7, 2016).
14. 14Dell Technologies and Silver Lake, "Dell Technologies Concludes Strategic Review and Reaches Agreement to Exchange Class V Tracking Stock" (July 2, 2018).
15. 15Fortune, "Michael Dell Wins Vote to Relist Company on NYSE" (December 11, 2018).
16. 16Forbes, "How Wall Street's Greatest Piece of Financial Engineering Propelled Michael Dell to a $50 Billion Fortune" (April 18, 2021).