The legal question decides who the record holder of a stock was and it might seem a simple question, but it was vital to Dell’s privatisation of his company.
A Delaware Court of Chancery judge removed several large investors from a consolidated lawsuit stemming from the $24.9 billion buyout of Dell in 2013 by founder Michael Dell and his private equity partner, Silver Lake.
Investors who opposed the deal, at $13.75 per share, asked a Delaware judge in 2013 to determine the fair price for the stock, a process known as appraisal.
To seek appraisal, shareholders cannot have voted in favour of the proposed buyout, and they have to be a continuous holder of record through the date of the deal.
Vice Chancellor Travis Laster ruled that three funds and two retirement plans, which held a combined 922,975 Dell shares, failed to meet the continuous ownership requirement.
The investors had not sold their Dell stock after seeking appraisal. Rather, the funds lost their appraisal rights due to a series of administrative moves by back-office firms that carry out share transfers.
Affiliates of North-western Mutual Life Insurance, Manulife Financial, T. Rowe Price, Milliken Retirement Plan and Curtiss-Wright Corp Retirement Plan, held Dell stock through custodial banks. The investors were beneficial owners, but the legal owner was Cede & Co, a share aggregator that owns the majority of publicly traded shares.
When the investors sought appraisal, Cede issued a paper stock certificate and sent it to the custodial banks to hold. The custodial bank placed the stock in the name of their own nominee, and then notified Dell’s agent to record the nominee on the corporate ledger.
Laster said that there needed to be a different system that would have recognized the funds rights to appraisal, but as it lies Dell was in the right.
“Were it up to me, I would hold that the concept of a ‘stockholder of record’ includes the custodial banks and brokers,” he wrote.
Dell is not saying anything, but the move will have saved it a fortune.