Title: Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd, et al.

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
DELL, INC., 
 
 
 
 
§ 
 
 
 
 
 
 
 
 
§ 
 
 
 
Respondent-Below, 
 
§ 
 
 
 
Appellant/Cross-Appellee, 
§  No. 565, 2016 
 
 
 
 
 
 
 
§ 
 
v. 
 
 
 
 
 
§  Court Below: 
 
 
 
 
 
 
 
§ 
MAGNETAR GLOBAL EVENT DRIVEN §  Court of Chancery  
MASTER FUND LTD; MAGNETAR  
§  of the State of Delaware  
CAPITAL MASTER FUND LTD; 
 
§ 
 
GLOBAL CONTINUUM FUND, LTD; 
§  Consolidated C.A. No. 9322-VCL 
SPECTRUM OPPORTUNITIES MASTER § 
FUND LTD.; MORGAN STANLEY  
§ 
 
DEFINED CONTRIBUTION MASTER 
§ 
 
TRUST; BLACKWELL PARTNERS LLC; § 
AAMAF, LP; WAKEFIELD PARTNERS, § 
LP; CSS, LLC; MERLIN PARTNERS, LP; § 
WILLIAM L. MARTIN; TERENCE  
§ 
LALLY; ARTHUR H. BURNET; 
 
§ 
DARSHANAND KHUSIAL; DONNA H. § 
LINDSEY; DOUGLAS J. JOSEPH ROTH § 
CONTRIBUTORY IRA; DOUGLAS J.  
§ 
JOSEPH & THUY JOSEPH, JOINT  
§ 
TENANTS; GEOFFREY STERN; JAMES § 
C. ARAMAYO; THOMAS RUEGG;  
§ 
CAVAN PARTNERS LP; and RENE A. 
§ 
BAKER, 
 
 
 
 
 
§ 
 
 
 
 
 
 
 
§ 
 
 
Petitioners-Below,  
 
§ 
 
 
Appellees/Cross-Appellants. 
§ 
 
 
Submitted:  September 27, 2017 
Decided:   December 14, 2017 
 
 
 
 
Before STRINE, Chief Justice; VALIHURA, VAUGHN, and TRAYNOR, 
Justices; and LeGROW, Judge  constituting the Court en Banc.  
 
Upon appeal from the Court of Chancery.   REVERSED in part, AFFIRMED in 
part, and REMANDED. 
 
Gregory P. Williams, Esquire (argued), John D. Hendershot, Esquire, Susan M. 
Hannigan, Esquire, and Andrew J. Peach, Esquire, Richards, Layton & Finger, P.A., 
Wilmington, Delaware.  Of Counsel:  John L. Latham, Esquire, and Susan E. Hurd, 
Esquire, Alston & Bird LLP, Atlanta, Georgia; Gidon M. Caine, Esquire, Alston & 
Bird LLP, East Palo Alto, California; and Charles W. Cox, Esquire, Alston & Bird 
LLP, Los Angeles, California, for Appellant/Cross-Appellee Dell Inc. 
 
Stuart M. Grant, Esquire (argued), Michael J. Barry, Esquire, Christine M. 
Mackintosh, Esquire, and Rebecca A. Musarra, Esquire, Grant & Eisenhofer P.A., 
Wilmington, Delaware, for Appellees/Cross-Appellants Morgan Stanley Defined 
Contribution Master Trust; AAMAF, LP; CSS, LLC; Merlin Partners, LP; William 
L. Martin; Terence Lally; Arthur H. Burnet; Darshanand Khusial; Donna H. 
Lindsey; Douglas J. Joseph Roth Contributory IRA; Douglas J. Joseph & Thuy 
Joseph, Joint Tenants; Geoffrey Stern; James C. Aramayo; Thomas Ruegg; and 
Rene A. Baker.   
 
Samuel T. Hirzel, II, Esquire (argued), and Melissa N. Donimirski, Esquire, Heyman 
Enerio Gattuso & Hirzel LLP, Wilmington, Delaware.  Of Counsel:  Lawrence M. 
Rolnick, Esquire, and Steven M. Hecht, Esquire, Lowenstein Sandler LLP, New 
York, New York, for Appellees/Cross-Appellants Magnetar Global Event Driven 
Master Fund Ltd; Magnetar Capital Master Fund Ltd; Global Continuum Fund Ltd; 
Spectrum Opportunities Master Fund Ltd; Blackwell Partners LLC; and Wakefield 
Partners LP.  
 
VALIHURA, Justice: 
                                              
 Sitting by designation pursuant to Del. Const. art. IV § 12. 
 
1 
 
The petitioners left standing in this long-running appraisal saga are former 
stockholders of Dell Inc. (“Dell” or the “Company”) who validly exercised their appraisal 
rights instead of voting for a buyout led by the Company’s founder and CEO, Michael Dell, 
and affiliates of a private equity firm, Silver Lake Partners (“Silver Lake”).  In perfecting 
their appraisal rights, petitioners acted on their belief that Dell’s shares were worth more 
than the deal price of $13.75 per share—which was already a 37% premium to the 
Company’s ninety-day-average unaffected stock price. 
Our appraisal statute, 8 Del. C. § 262, allows stockholders who perfect their 
appraisal rights to receive “fair value” for their shares as of the merger date instead of the 
merger consideration.  The appraisal statute requires the Court of Chancery to assess the 
“fair value” of such shares and, in doing so, “take into account all relevant factors.”  The 
trial court complied: it took into account all the relevant factors presented by the parties in 
advocating for their view of fair value—including Dell’s stock price and deal price—and 
then arrived at its own determination of fair value. 
The problem with the trial court’s opinion is not, as the Company argues, that it 
failed to take into account the stock price and deal price.  The trial court did consider this 
market data.  It simply decided to give it no weight.  But the court nonetheless erred because 
its reasons for giving that data no weight—and for relying instead exclusively on its own 
discounted cash flow (“DCF”) analysis to reach a fair value calculation of $17.62—do not 
follow from the court’s key factual findings and from relevant, accepted financial 
principles.  
 
2 
 
“When reviewing a decision in a statutory appraisal, we use an abuse of discretion 
standard and grant significant deference to the factual findings of the trial court.  This Court 
‘will accept [the Court of Chancery’s] findings if supported by the record . . . .’”1  We defer 
to the trial court’s fair value determination if it has a “reasonable basis in the record and in 
accepted financial principles relevant to determining the value of corporations and their 
stock.”2 
Here, the trial court gave no weight to Dell’s stock price because it found its market 
to be inefficient.  But the evidence suggests that the market for Dell’s shares was actually 
efficient and, therefore, likely a possible proxy for fair value.  Further, the trial court 
concluded that several features of management-led buyout (“MBO”) transactions render 
the deal prices resulting from such transactions unreliable.  But the trial court’s own 
findings suggest that, even though this was an MBO transaction, these features were largely 
absent here.  Moreover, even if it were not possible to determine the precise amount of that 
market data’s imperfection, as the Court of Chancery concluded, the trial court’s decision 
to rely “exclusively” on its own DCF analysis3 is based on several assumptions that are not 
grounded in relevant, accepted financial principles.  
                                              
1 DFC Global Corp. v. Muirfield Value Partners, --- A.3d ----, 2017 WL 3261190, at *12 (Del. 
Aug. 1, 2017) (quoting In re Shell Oil Co., 607 A.2d 1213, 1219 (Del. 1992)); see also M.G. 
Bancorp., Inc. v. Le Beau, 737 A.2d 513, 526 (Del. 1999) (“The Court of Chancery abuses its 
discretion when either its factual findings do not have record support or its valuation is not the 
result of an orderly and logical deductive process.”). 
2 DFC, 2017 WL 3261190, at *1.  
3 In re Appraisal of Dell (Dell Trial Fair Value), 2016 WL 3186538, at *51 (Del. Ch. May 31, 
2016). 
 
3 
 
We REVERSE, in part, and AFFIRM, in part, and REMAND for these reasons and 
those that follow.  In addition, for reasons discussed in Section IV, we REVERSE and 
REMAND the Court of Chancery’s decision concerning the allocation of fees and costs 
among the appraisal class. 
I. 
 
A. Dell 
 
In June 2012, when the idea of an MBO first arose, Dell was a mature company on 
the brink of crisis: its stock price had dropped from $18 per share to around $12 per share 
in just the first half of the year.  The advent of new technologies such as tablet computers 
crippled the traditional PC-maker’s outlook.  The Company’s recent transformation 
struggled to generate investor optimism about its long-term prospects.  And the global 
economy was still hungover from the financial crisis of 2008. 
 
Other than a brief hiatus from 2004 to his return in 2007, Michael Dell had led Dell 
as CEO, from the Company’s founding in his first-year dorm room at the University of 
Texas at Austin when he was just nineteen years old, to a Fortune 500 behemoth with 
 
4 
 
global revenues hitting $56.9 billion in the fiscal year ending February 1, 2013.4  Dell was 
indisputably one of the world’s largest IT companies.5  
i. 
Michael Dell’s Return and the Company’s Challenges 
 
Upon his return to the Company in 2007, Mr. Dell6 perceived three key challenges 
facing Dell.  First, low-margin PC-makers such as Lenovo were muscling into Dell’s 
market share as the performance gap between its higher-end computers and the cheaper 
alternatives narrowed.  Second, starting with the launch of Apple’s iPhone in 2007, the 
impending onslaught of smartphones and tablet computers appeared likely to erode 
traditional PC sales.  Third, cloud-based storage from the likes of Amazon.com threatened 
the Company’s traditional server storage business. 
 
In light of these threats, Mr. Dell believed that, to survive and thrive, the Company 
should focus on enterprise software and services, which could be accomplished through 
acquisitions in these spaces.  From 2010 through 2012, the Company acquired eleven 
companies for approximately $14 billion.  And Mr. Dell tried to sell the market on this 
transformation.  He regularly shared with equity analysts his view that the Company’s 
                                              
4 Id. at *1; Revised Expert Report of Glenn Hubbard (Sept. 29, 2015), at A3262 [hereinafter Dell’s 
Valuation Expert Report].  In general, citations to the record have been shortened to a short name 
of the document, “at,” and the appendix page number.  Page numbers beginning with “A” refer to 
the Appendix to the Appellant’s Opening Brief; page numbers beginning with “B” refer to the 
Appendix to the Appellees/Cross-Appellants’ Answering Brief and Opening Brief on Cross-
Appeal; page numbers beginning with “AR” refer to the Appendix to Appellant’s Reply Brief on 
Appeal and Cross-Appellee’s Answering Brief on Cross-Appeal.  
5 Dell’s Valuation Expert Report, supra note 4, at A3262. 
6 As the Court of Chancery did in its opinion, we use the honorific “Mr. Dell” to distinguish 
Michael Dell from Dell, the company. 
 
5 
 
enterprise solutions and services divisions would achieve annual sales growth in the 
double-digits and account for more than half of Dell’s profits by 2016.   
Yet despite Dell’s M&A spurt and Mr. Dell’s attempts to persuade Wall Street to 
buy into the Company’s future, the market still “didn’t get” Dell, as Mr. Dell lamented.7  It 
still viewed the Company as a PC business, and its stock hovered in the mid-teens.  
ii. 
The Market for Dell’s Stock 
Dell’s stock traded on the NASDAQ under the ticker symbol DELL.  The 
Company’s market capitalization of more than $20 billion ranked it in the top third of the 
S&P 500.8  Dell  had a deep public float9 and was actively traded as more than 5% of Dell’s 
shares were traded each week.10  The stock had a bid-ask spread of approximately 0.08%.11  
It was also widely covered by equity analysts,12 and its share price quickly reflected the 
                                              
7 Dell Trial Fair Value, 2016 WL 3186538, at *2. 
8 Dell’s Valuation Expert Report, supra note 4, at A3285.  See also Revised Expert Report of 
Bradford Cornell (Sept. 27, 2015), at A3527 (noting Dell’s pre-announcement market 
capitalization was $18.902 billion).    
9 As of August 3, 2012, Dell approximated the aggregate market value of its common stock held 
by non-affiliates to be $17.1 billion.  Dell Form 10-K for FY 2013 (Mar. 12, 2013), at A1967 
[hereinafter Form 10-K 2013].  The public float was 84.29% in 2012.  See Dell’s Valuation Expert 
Report, supra note 4, at A3423.  At the time of the transaction, Dell had 1,765,369,276 publicly 
traded shares outstanding.  Dell Trial Fair Value, 2016 WL 3186538, at *51. 
10 See, e.g., Dell’s Valuation Expert Report, supra note 4, at A3285-86, A3423 (noting that Dell’s 
average weekly trading volume was 5.52% of its shares in 2012); 5 Alan R. Bromberg, Lewis D. 
Lowenfels & Michael J. Sullivan, Bromberg & Lowenfels on Securities Fraud § 7:484 (2d ed. June 
2017 Update) (“Turnover measured by average weekly trading of 2% or more of the outstanding 
shares would justify a strong presumption that the market for the security is an efficient one.”).    
11 Dell’s Valuation Expert Report, supra note 4, at A3286, A3423. 
12 See, e.g., JPMorgan Presentation to the Denali Special Committee (Oct. 9, 2012), at A1572 
(noting that, as of October 9, 2012, thirty-three research analysts were covering Dell).  
 
6 
 
market’s view on breaking developments.13  Based on these metrics, the record suggests 
the market for Dell stock was semi-strong efficient, meaning that the market’s digestion 
and assessment of all publicly available information concerning Dell was quickly 
impounded into the Company’s stock price.14  For example, on January 14, 2013, Dell’s 
stock jumped 9.8% within a minute of Bloomberg breaking the news of the Company’s 
take-private talks, and the stock closed up 13% from the day prior—on a day the S&P 500 
as a whole fell 0.1%.15  
B. 
The Sale Process 
 
The first inkling of a Dell MBO can be traced to June 2012, when private equity 
executive Staley Cates of Southeastern Asset Management suggested to Mr. Dell that he 
might consider taking the Company private.16  Mr. Dell was intrigued as he believed it 
would be easier to execute the Company’s transformation plan unencumbered by 
stockholder pressure.17  However, the Company’s financial advisor, Goldman Sachs, 
warned that an MBO would be too difficult to pull off.18  But after Silver Lake’s Egon 
Durban also proposed the idea of an MBO that August, Mr. Dell enlisted the advice of 
                                              
13 Dell’s Valuation Expert Report, supra note 4, at A3304-06. 
14 Id. at A3263, A3285-86.   
15 Id. at A3305-06.      
16 Dell Trial Fair Value, 2016 WL 3186538, at *2. 
17 Transcript of Michael Dell Deposition (May 14, 2015), at B1459-60 [hereinafter M. Dell 
Deposition].  
18 Transcript of Michael Dell Trial Testimony (Oct. 6, 2015), at A582 [hereinafter M. Dell 
Testimony]; M. Dell Deposition, supra note 17, at B1459.  
 
7 
 
friend and private equity executive George Roberts of Kohlberg Kravis Roberts & Co. L.P. 
(“KKR”).19  This time, he received positive feedback, including an indication that KKR 
might be interested in participating should the Company go that route.20  Mr. Dell then 
brought the idea to Dell’s Board by calling the Company’s lead independent director, Alex 
Mandl, on Friday, August 14, 2012.21  
The following Monday, the Board met and created an independent special 
committee composed of four independent directors (the “Committee”) to evaluate possible 
transactions to acquire the Company proposed by Mr. Dell and/or any other party, as well 
as to explore possible strategic alternatives.  The Board empowered the Committee to hire 
its own legal and financial advisors, and the Committee selected Debevoise & Plimpton 
LLP as legal counsel and JP Morgan Chase & Co. as financial advisor.  (The Committee 
eventually hired Evercore Partners as a second financial advisor in January 2013.)  The 
Committee also had full and exclusive authority to recommend to the Board a course of 
action regarding any proposed transaction, and the Board vowed not to recommend that 
stockholders approve a transaction without receiving a prior favorable recommendation 
from the Committee.  
Dell’s earnings for the second quarter of Fiscal 2013, announced the following day, 
August 21, 2012, underscored the Company’s challenges: revenue was down 8% from the 
                                              
19 Dell Trial Fair Value, 2016 WL 3186538, at *2. 
20 Id. 
21 Id. 
 
8 
 
prior year, and earnings per share dropped 13%. The Company’s revenue fell short of 
expectations, and its management further revised its EPS forecast down 20% for Fiscal 
2013.  Dell management said that the Company was amid a “long-term strategy” expected 
to “take time” to reap benefits.22  But one analyst called the Company a “sinking ship” and 
emphasized that “Dell’s turnaround strategy is fundamentally flawed [and] the 
fundamentals are bad.  Dell may have responded too late to save itself.”23  Many analysts 
also revised their price targets downward.  
i. 
The Pre-Signing Canvass 
The following month, September, after entering into confidentiality agreements 
with the Committee, Silver Lake and KKR began evaluating Dell’s proprietary data, 
including management projections. 
Mr. Dell, who owned 13.9% of the Company’s outstanding shares as of August 
2012 and 15.4% as of September 2012, also entered into a confidentiality agreement.  Mr. 
Dell’s confidentiality agreement required him to, among other things, “explore in good 
faith the possibility of working with any such potential counterparty or financing source if 
requested by the Committee,” a provision designed to prevent his prior involvement with 
KKR and Silver Lake from deterring other possible bidders.24  
                                              
22 Id. at *4. 
23 Id. 
24 Id. at *5.  
 
9 
 
After consulting with JPMorgan, the Committee decided to limit its initial pre-
signing market canvass to KKR and Silver Lake because they were, according to 
JPMorgan, “among the best qualified potential acquirers,” and “there was a low probability 
of strategic buyer interest in acquiring the Company.”25  Using management forecasts that 
the Committee still considered “overly optimistic,”26 on October 9, 2012, the day after the 
Company’s stock price closed at $9.66 per share, JPMorgan shared with the Committee 
that it believed a financial sponsor could pay approximately $14.13 per share and still 
obtain an internal rate of return (“IRR”) of a level that could attract private equity buyers 
such as KKR and Silver Lake, a five-year IRR of 20% per share.27  At several Committee 
meetings that fall, JPMorgan and the Company’s bankers from Goldman Sachs shared a 
range of valuations for various transaction scenarios, including Goldman’s projections for 
the Company’s future share prices if Dell remained a standalone public Company.28  
On October 23, 2012, a day on which Dell’s stock price was to close at $9.35, both 
KKR and Silver Lake proposed transactions to the Committee.  KKR indicated its interest 
in an all-cash transaction at between $12.00 and $13.00 per share, excluding Mr. Dell’s 
and Southeastern’s shares.  Under KKR’s proposal, Mr. Dell was to invest an additional 
                                              
25 Id. at *6. 
26 Id. 
27 Id. at *6-7. 
28 See id. at *6 (“On October 9, 2012, the Committee received a presentation from JPMorgan that 
provided a preliminary assessment of the Company’s value as a standalone entity.”); id. at *7 
(“Goldman observed that ‘[i]llustrative standalone valuation analyses result in [Company] value 
outcomes that are significantly higher than the current share price.’”).  However, Goldman Sachs’s 
preliminary report relied on management’s “September Case” projections considered overly 
optimistic.  See id. 
 
10 
 
$500 million in the Company.  Silver Lake proposed an all-cash transaction at between 
$11.22 and $12.16 per share, excluding Mr. Dell’s shares.   
But, as JPMorgan observed when reviewing these proposals with the Committee, 
these expressions of interest undershot the $14.13 per share that it believed a financial 
sponsor could pay.  The Committee asked Mr. Dell to email both firms to encourage them 
to raise their offers, and he obliged—sending the same email to each in which he offered 
for Company management to meet with representatives of each firm and solicited their 
advice on what the Company could do to help improve their proposals.29  
But the Company’s third-quarter earnings, released on November 15, 2012, brought 
more bad news for Dell: revenue dropped 11% from the prior year, and EPS was down 
28%.  During this period when Dell was trying to sell its long-term vision without success, 
it kept failing the quarterly tests on which so many market analysts focus.  By way of 
example, this was the sixth of the past seven quarters that revenue fell below consensus 
estimates.  As research analysts lowered their price targets out of concern for the future of 
the PC industry and growing skepticism about Dell’s turnaround strategy, even CFO Brian 
Gladden acknowledged that “[m]anagement projections appear optimistic given valuation 
& sell-side estimates of Dell future value.”30  The Committee enlisted Boston Consulting 
Group (“BCG”) to formulate independent projections for the Company.  
                                              
29 Id. at *8. 
30 Id. 
 
11 
 
 
By December 3, 2012, KKR withdrew its proposal as it was unable to “get [its] arms 
around the risks of the PC business.”31  
 
For his part, Mr. Dell remained open “to join up with whoever” and was willing to 
supply as much equity as necessary for a transaction.32  To restore competition to the 
process once KKR dropped out, the Committee asked another PE heavyweight, Texas 
Pacific Group (“TPG”), who had recently invested in Dell’s down-market rival Lenovo, to 
explore an acquisition.33  Though TPG signed a confidentiality agreement, obtained access 
to the data room, “spent a good deal of resources on it,”34 and its leaders sat through 
presentations by Dell management, the PE firm reported to the Committee on December 
23, 2012, that it decided not to submit a bid as “cash flows attached to the PC business 
were simply too uncertain, too unpredictable to establish an investment case.”35 
 
By January 24, 2013, three additional parties had expressed a desire to explore a 
deal.  GE Capital, a “strategic party,” told Evercore that it was interested in buying the Dell 
Financial Services business for approximately the book value of its assets, between $3.5 
and $4 billion.36  Blackstone also called Evercore with a heads-up that it anticipated 
exploring a Dell deal during the go-shop and “seeking assurances that any definitive 
                                              
31 Id. 
32 Id. 
33 Id. at *9.  
34 Transcript of Alex Mandl Trial Testimony (Oct. 5, 2015), at A314 [hereinafter Mandl 
Testimony].   
35 Dell Trial Fair Value, 2016 WL 3186538, at *9-10. 
36 Minutes of Special Committee Meeting (Jan. 24, 2013), at A1639-40. 
 
12 
 
agreement the Company may be considering entering into would provide for a meaningful 
go-shop process.”37  Last, Southeastern sought to enter into a confidentiality agreement and 
start reviewing the Company’s confidential information.38 
News that Dell was exploring a strategic transaction had been leaking out since 
December, and Evercore reasoned that “if there were any people out there who were 
actively interested, there was a good chance they would have already come forward.”39 
 
For its part, Silver Lake remained interested in a deal through it all.  Over the course 
of negotiations, the Committee persuaded Silver Lake to raise its offer six times from its 
initial proposal of $11.22-to-$12.16 per share.40  It helped that, after the Board resolved to 
seek $13.75 per share and settle for no less than $13.60 per share, Mr. Dell agreed to accept 
a lower price to roll over his shares than unaffiliated stockholders were to receive.  On 
February 3, Silver Lake presented the Committee two options greater than its existing 
$13.50 per share offer: either (i) $13.60 per share if it allowed the Company to continue its 
regular quarterly dividend payment through closing, or (ii) $13.75 all-cash with no 
                                              
37 Id. at A1640.  The Court of Chancery opinion notes that Evercore’s engagement with the 
Committee promised it a contingency fee if and only if a deal surfaced during the go-shop and, as 
such, it suggested that Evercore advised the Committee to delay negotiations with Blackstone until 
the go-shop due to the incentives of its own compensation arrangement.  See Dell Trial Fair Value, 
2016 WL 3186538, at *11.  But other evidence in the record suggests that Blackstone proposed 
waiting until the go-shop on its own.  See Transcript of William Hiltz Trial Testimony (Oct. 6, 
2015), at A517 [hereinafter Hiltz Testimony]; Minutes of Special Committee Meeting (Jan. 24, 
2013), at A1640.   
38 Id. 
39 Hiltz Testimony, supra note 37, at A516. 
40 Schedule 14A (May 31, 2013), at 27 (A2199), 30 (A2202), 37-38 (A2209-10), 41 (A2213) 
[hereinafter Proxy].  
 
13 
 
additional dividends.  After the Committee told Silver Lake that $13.60 would not suffice 
under the first alternative, Silver Lake boosted the cash component to $13.65 per share on 
February 4, its “best and final offer.”41  
The Committee met with its financial advisors on the afternoon of February 4: both 
Evercore and JPMorgan indicated that they considered $13.65 per share fair to the 
unaffiliated stockholders from a financial point of view.42  The Committee recommended 
that the Board accept Silver Lake’s offer, and, aside from Mr. Dell, who was not present, 
the Board unanimously adopted resolutions approving the transaction.43  The next morning, 
February 5, 2013, the Company and three entities affiliated with Silver Lake and Mr. Dell 
(collectively the “Buyout Group”) entered into the merger agreement dated February 5, 
2013 (collectively with amendments, the “Merger Agreement”), and they publicly 
announced the planned transaction.44   
 
Mr. Dell signed a voting agreement wherein he pledged that he and his affiliates 
would vote their shares in proportion to the number of unaffiliated shares that vote for 
either (i) a “Superior Proposal” as defined in the Merger Agreement which, if available, 
would terminate the Merger Agreement; or (ii) the adoption of the Merger Agreement if 
the Board changed its recommendation.45  This meant that any outside bidder who 
                                              
41 Dell Trial Fair Value, 2016 WL 3186538, at *12.  
42 Id.; Proxy, supra note 40, at 41-42 (A2213-14), 60 (A2232). 
43 Id. at 42 (A2214).  
44 Id. at 43 (A2215); Merger Agreement at Proxy Annex A (A2364-2437).   
45 Dell Trial Fair Value, 2016 WL 3186538, at *12. 
 
14 
 
persuaded stockholders that its bid was better would have access to Mr. Dell’s votes, 
eliminating one of the key problems other bidders may face when there is a CEO with 
material voting power. 
 
The transaction contemplated that Mr. Dell would roll over his shares at $13.36 per 
share and invest up to $500 million in additional equity and that an affiliate of his would 
invest up to $250 million in additional equity.  This transaction structure would give Mr. 
Dell a 74.9% stake in the Company post-closing, and Silver Lake a 25.1% stake. 
 
The Merger Agreement also provided for a forty-five-day go-shop period ending 
March 23, 2013; a one-time match right for the Buyout Group available until the 
stockholder vote; and termination fees of $180 million if the Company agreed to a Superior 
Proposal as defined in the Merger Agreement that materialized during the go-shop period, 
or $450 million if the Company agreed to a non-Superior Proposal or to bids produced after 
the go-shop period. 
ii. 
The Go-Shop Period 
 
Led by Evercore, the go-shop period began on February 5, 2013.  Within ten days, 
Evercore had surveyed the interest of sixty parties, including Blackstone and Hewlett-
Packard (“HP”), the two parties that Evercore had identified as Dell’s top prospects for a 
deal aside from the Buyout Group.  
 
As the Company’s closest competitor, HP appeared the natural strategic partner for 
a deal.  Though Evercore told HP that a deal with Dell could realize between $3 and 4 
billion in annual cost savings through synergies and HP signed a confidentiality agreement, 
HP’s representatives never logged into the data room. 
 
15 
 
 
The Company received its first non-binding proposal of the go-shop period on 
March 5, 2013, when Carl Icahn of Icahn Enterprises L.P. (“Icahn”) wrote a letter to the 
Board opposing the MBO as announced and proposing a leveraged recapitalization instead.  
After signing a confidentiality agreement, Icahn accessed the data room on March 11. 
 
On March 21, 2013, GE Capital again offered to purchase the Company’s financial 
services business, this time for $3.6 billion in cash, and said that it was willing to allow the 
Committee to consider its proposal in conjunction with any other bid. 
 
The next day, Icahn submitted a revised non-binding proposal that was to allow 
stockholders to choose between either (i) rolling over their shares into a new entity one-to-
one, or (ii) receiving $15.00 per share in cash up to $15.6 billion in total cash payments.  
Under this plan, if more stockholders requested cash than available under the $15.6 billion 
cap, the $15.6 billion would be distributed pro rata among all those stockholders requesting 
cash.  Evercore valued this proposal at between $13.37 and $14.42 per share. 
 
That day, March 22, 2013, Blackstone and a group of other possible investors also 
submitted a non-binding proposal that involved a choice: existing Dell stockholders could 
receive $14.25 per share in cash or stock in a new entity valued at $14.25 capped at the 
total amount of equity issued by the new entity.  Evercore and JPMorgan each said this 
proposal was worth $14.25 per share. 
 
By the time the go-shop period ended on March 23, Evercore had contacted sixty-
seven parties, including twenty potential strategic buyers and seventeen financial sponsors, 
 
16 
 
about their interest in a transaction involving Dell.46  Evercore also received unsolicited 
inquiries from two strategic parties and two financial sponsors.47 
 
Mr. Dell was available to all parties throughout the go-shop period. Though Mr. 
Dell wanted to go on a two-week vacation that spring, Evercore insisted that he stay given 
that he “wasn’t unavailable to Silver Lake at any point during their final 2 pre-offer 
weeks.”48  
C. 
After the Go-Shop 
Because the Icahn and Blackstone proposals could both potentially lead to Superior 
Proposals under the Merger Agreement, they qualified as Excluded Parties, which meant 
Dell would only have to pay a $180 million termination fee if it chose to forego the Silver 
Lake deal. 
 
Blackstone said that it would continue exploring a transaction only if Dell 
reimbursed it for its out-of-pocket due diligence expenses.  To avoid inadvertently 
breaching the Merger Agreement, which would allow the Buyout Group to revoke its offer, 
the Committee sought Silver Lake’s consent.  Silver Lake agreed on the condition that it, 
too, receive payment for such expenses.  The Committee agreed to reimburse both 
Blackstone and Silver Lake for up to $25 million of due diligence costs. 
                                              
46 Proxy, supra note 40, at 43 (A2215). 
47 Id. 
48 Dell Trial Fair Value, 2016 WL 3186538, at *14. 
 
17 
 
 
Icahn sought the same arrangement for his firm while it was negotiating over a 
waiver of the limitations on deals with interested stockholders under 8 Del. C. § 203.  
Concerned that Icahn might become hostile, the Committee agreed to extend the same 
expense reimbursement to Icahn as long as he signed a standstill.49  
 
Mr. Dell did not let his initial alliance with Silver Lake impede his willingness to 
explore a future with Blackstone.  An email from Mr. Dell to Blackstone from that period 
shows that Mr. Dell felt that Blackstone “substantially” agreed with his vision for the 
Company and that Mr. Dell was “open to considering all alternatives.”50  But Blackstone’s 
actions also suggested that its interest was not founded—and that a deal would not hinge—
on Mr. Dell’s continued involvement in the Company: Reuters reported that Blackstone 
was reviewing candidates to replace him as CEO.51 
 
Blackstone charged David Johnson, who had just joined the PE firm from his job as 
Dell’s head of acquisitions that January, with leading its diligence operation: more than 
460 people combed through the virtual data room, and approximately forty Blackstone 
employees took over a Texas ballroom for additional on-the-ground diligence alongside 
twenty Dell employees.  From Dell’s side, Mr. Dell attested that he “spent more time with 
Blackstone than any of the other participants.”52  Overall, Dell’s whole management team 
                                              
49 Id. at *15.  Icahn agreed to these terms.  See Proxy, supra note 40, at 49 (A2221).  
50 Dell Trial Fair Value, 2016 WL 3186538, at *15. 
51 See id. 
52 Id. 
 
18 
 
spent more time with Blackstone representatives than with those from any other 
prospective investor, including Silver Lake. 
 
But this diligence operation ultimately led Blackstone to back down.  It withdrew 
from the bidding on April 18, 2013, and cited two key reasons for its decision: “(1) an 
unprecedented 14 percent market decline in PC volume in the first quarter of 2013, its 
steepest drop in history, and inconsistent with Management’s projections for modest 
industry growth; and (2) the rapidly eroding financial profile of Dell.”53  For instance, 
Blackstone noted that, since Blackstone’s initial bid on March 22, Dell revised its operating 
income projections downward by $700 million (from $3.7 billion to $3 billion).  
 
But Icahn remained interested and, on May 8, 2013, his firm teamed up with Cates’s 
Southeastern to propose a modified recapitalization plan that would allow existing 
stockholders to keep their shares and have the option to choose to receive either (i) $12.00 
in cash per share, or (ii) $12.00 worth of new shares of stock valued at $1.65 per share.  
Evercore did not think the Icahn-Southeastern plan could qualify as a Superior Proposal 
under the Merger Agreement given that it contemplated strictly a leveraged 
recapitalization.54 
 
Meanwhile, the Company’s first quarter results for Fiscal 2014, released May 16, 
2013, still failed to demonstrate that Dell’s turnaround strategy had legs as net income fell 
79% from the previous year, and GAAP earnings per share were down 81%.  Bernstein 
                                              
53 Id. 
54 Id. at *16.  
 
19 
 
Research highlighted that Dell’s enterprise solutions and services segment had “woeful” 
margins, “well below industry peers.”55  The Company’s CFO Brian Gladden did not object 
to that assessment and wrote in an email to Dell’s senior leadership team that they needed 
to have “some very serious conversations . . . about the trajectory of the business and our 
growth/profitability plans.  It’s not apparent that the shift to growth will bring profit and 
cash in the short or long term . . . . We cannot support the current opex [operating expense] 
structure with these results.”56  
i. 
Dueling Proposals Ahead of Stockholder Vote 
The Board arranged for a stockholder vote on the merger to occur at a special 
meeting on July 18, 2013.  The definitive proxy statement filed May 31, 2013, explained 
that the Committee decided to recommend the transaction with Silver Lake as fair to 
unaffiliated stockholders because it involved, among other things: (i) the certainty of cash 
consideration; (ii) a 37% premium over the Company’s ninety-day-average unaffected 
trading price of $9.97; and (iii) a 25% premium over its one-day unaffected trading price 
of $10.88.57  In evaluating the transaction’s fairness, the Committee “believ[ed] that the 
trading price of the Common Stock at any given time represent[ed] the best available 
indicator of the Company’s going concern value at that time, so long as the trading price 
                                              
55 Id. 
56 Id.; Email from B. Gladden to J. Clarke et. al. re: 1Q summary (May 17, 2013), at B724.  
57 Proxy, supra note 40, at 55 (A2227). 
 
20 
 
at that time is not impacted by speculation regarding the likelihood of a potential 
transaction.”58  
But Icahn was still in the hunt: he filed his preliminary proxy statement on June 6; 
disclosed on June 18 that he and affiliates had purchased seventy-two million shares from 
Southeastern at $13.52 per share; and advised Dell stockholders in writing on June 19 that 
he planned to nominate his own slate of directors who would scrap the transaction with the 
Buyout Group and instead launch a self-tender for 1.1 billion shares at $14 per share.  Icahn 
vowed not to tender his shares.  On July 1, Icahn revealed to the Committee and the 
Company’s stockholders that lenders had committed $5.2 billion to finance the partial 
tender offer proposal. 
 
After the leading proxy advisory firms recommended that stockholders approve the 
MBO, Icahn revised his proposal on July 12 to add one warrant for every four shares 
tendered.  Each warrant would entitle the holder for a period of seven years to purchase 
one share of the Company’s common stock for $20. 
 
On July 17, the day before the vote, the Committee’s proxy solicitor informed it that 
the Company’s stockholders were unlikely to approve the merger. To avoid defeat, the 
Committee convened the meeting and adjourned it without holding a vote, affording the 
Buyout Group time to improve its proposal. 
 
The Buyout Group initially proposed adding $0.10 per share to the merger 
consideration in exchange for reducing the number of stockholders needed to approve the 
                                              
58 Id. at 60 (A2232).  
 
21 
 
merger, from the majority of all unaffiliated stockholders to simply the majority of those 
unaffiliated stockholders present at the meeting or who vote by proxy.  But the Committee 
rejected this adjustment on July 30, sending the Company’s stock price down 2.55%. 
 
The next day, the Buyout Group sweetened the deal for lowering the threshold for 
approving the deal: in addition to the ten-cent bump that brought the merger consideration 
to $13.75, the Buyout Group promised a special cash dividend of $0.08 per share; vowed 
to pay a third-quarter dividend of $0.08 no matter the closing date; and agreed to accept a 
reduced termination fee of $180 million instead of $450 million if the stockholders rejected 
the merger in favor of a leveraged recapitalization or similar proposal in the next twelve 
months.  After the Committee insisted that it would not accept the deal unless the special 
cash dividend increased to $0.13, the Buyout Group agreed, bringing the total value of the 
deal to $13.96 per share. (To finance the adjustment, Mr. Dell agreed to receive $12.51 
instead of $13.36 for his rollover shares.) 
When the Committee met to evaluate the revised proposal on August 2, 2013, both 
Evercore and JPMorgan determined the $13.75 per share deal price to be fair to the 
unaffiliated stockholders. Following the Committee’s advice, the Board approved the 
revised transaction (hereinafter, the “Merger”) and amended the Merger Agreement to 
reflect the changed deal terms.  A vote was scheduled for September 12, 2013.   
 
 
 
 
 
22 
 
ii. 
Stockholder Vote  
 
At the special meeting held September 12, 2013, 57% of all Dell shares approved 
the Merger (70% of the shares present at the meeting).  The Merger closed October 29, 
2013, and the shares of non-dissenting Dell stockholders were converted into $13.75 per 
share in cash.  Though Icahn and Southeastern initially indicated that they would seek 
appraisal if the Merger were approved, they withdrew their demands.  However, holders of 
38,765,130 shares of Dell common stock demanded appraisal.59   
D. 
The Appraisal Trial 
 
The four-day appraisal trial in October 2015 featured 1,200 exhibits, seventeen 
depositions, live testimony from seven fact witnesses and five expert witnesses, a 542-
paragraph-long pre-trial order, and 369 pages of pre- and post-trial briefing.  Petitioners 
argued that, as demonstrated through their expert’s DCF analysis, the fair value of the 
Company’s common stock at the effective time of the Merger was actually $28.61 per 
share—more than double the deal price of $13.75.  If this valuation were correct, the 
Buyout Group obtained Dell at a $26 billion discount to its actual value.  In contrast, Dell 
maintained that its DCF analysis yielding a $12.68 per share valuation was a more 
appropriate approximation of fair value, but that, in light of the uncertainties facing the PC 
industry, fair value could be as high as the deal price (but not greater). 
                                              
59 In re Appraisal of Dell (Dell Fees & Expenses), 2016 WL 6069017, at *1 (Del. Ch. Oct. 17, 
2016). 
 
23 
 
E. 
The Court of Chancery’s Determination of Fair Value 
The Court of Chancery acknowledged that “[t]he consideration that the buyer agrees 
to provide in the deal and that the seller agrees to accept is one form of market price data, 
which Delaware courts have long considered in appraisal proceedings.”60  However, the 
court believed that flaws in Dell’s sale process meant that the deal price of $13.75 should 
not be afforded any weight here since it was “not the best evidence of [the Company’s] fair 
value.”61  Accordingly, the trial court disregarded both Dell’s pre-transactional stock price 
and the deal price entirely. 
 
The Court of Chancery identified three crucial problems with the pre-signing phase 
of the sale process that contributed to its decision to disregard the market-based indicators 
of value.  
First, the primary bidders were all financial sponsors who used an LBO pricing 
model to determine their bid prices—meaning that the per-share deal price needed to be 
low enough to facilitate an IRR of approximately 20%.  As the court saw it, the prospective 
PE buyers, the Buyout Group, Mr. Dell, and the Committee never focused on determining 
the intrinsic value of the Company as a going concern. 
Second, the trial court believed that Dell’s investors were overwhelmingly focused 
on short-term profit, and that this “investor myopia” created a valuation gap that 
purportedly distorted the original merger consideration of $13.65.  Thus, under the Court 
                                              
60 Dell Trial Fair Value, 2016 WL 3186538, at *22.  
61 Id. at *22, *29. 
 
24 
 
of Chancery’s logic, the efficient market hypothesis—which teaches that the price of a 
company’s stock reflects all publicly available information as a consensus, per-share 
valuation—failed when it came to Dell, diminishing the probative value of the stock price.  
This phenomenon also allegedly depressed the deal price by anchoring deal negotiations at 
an improperly low starting point.62 
Third, the trial court concluded that there was no meaningful price competition 
during the pre-signing phase as, at any given time during the pre-signing phase, there were 
at most two private equity sponsors competing for the deal, creating little incentive to bid 
up the deal price.  The trial court especially faulted the Committee for declining to reach 
out to potential strategic bidders, such as HP, during the pre-signing phase, leaving the 
financial sponsors who were engaged without the incentive “to push their prices upward to 
pre-empt potential interest from that direction.”63  According to the trial court, large private 
equity buyers such as those engaged here are notoriously averse to topping each other, and 
without the specter of a strategic buyer, the Committee lacked “the most powerful tool that 
a seller can use to extract a portion of the bidder’s anticipated surplus”—the “threat of an 
alternative deal.”64  
 
Next, the trial court evaluated the post-signing go-shop process, where it identified 
several additional issues that it believed further contributed to a deal price that fell short of 
fair value.  Though two additional proposals to acquire the Company emerged during the 
                                              
62 Id. at *33-36. 
63 Id. at *37.   
64 Id. 
 
25 
 
go-shop period, from Blackstone and Icahn, the trial court dismissed their import given 
that these prospective buyers also operated within the “confines of the LBO model,” and 
that the deal price ultimately increased by just 2% over the original merger consideration 
of $13.65 per share as a result of this go-shop. 
 
Further, the trial court observed that the deal’s structure as an MBO imposed several 
additional, supposedly insurmountable impediments to Dell’s ability to prove at trial that 
the deal’s “structure in fact generated a price that persuasively established the Company’s 
fair value.”65  The trial court emphasized that, to prove a go-shop’s worth, it is crucial to 
show that prospective rival bidders had a “realistic pathway to success” so as to justify the 
time, expense, and harm to professional relationships that might result from pursuing an 
offer.66  Though the trial court recognized that the “relatively open” structure of the 
Committee’s go-shop “raised fewer structural barriers than the norm,”67 the court believed 
such openness could not obviate the issues imposed by features “endemic to MBO go-
shops,” which “create a powerful disincentive for any competing bidder—and particularly 
competing financial bidders—to get involved.”68  These features include a so-called 
“winner’s curse” and the management team’s inherent value to the Company.69 
                                              
65 Id. at *39. 
66 Id. 
67 Id. at *40. 
68 Id. at *43.  
69 Id. 
 
26 
 
The concept of a “winner’s curse” reflects the notion that “incumbent management 
has the best insight into the Company’s value, or at least is perceived to have an 
informational advantage,” so if a financial buyer is willing to outspend management to win 
a deal, it must be overpaying because it must have overlooked some piece of information 
that dissuaded management from bidding as much.70  Further, the trial court inferred that 
“Mr. Dell’s unique value and his affiliation with the Buyout Group were negative factors 
that inhibited the effectiveness of the go-shop process,” 71  despite evidence that suggested 
that neither Blackstone nor Icahn—nor anyone else, for that matter—believed that Mr. 
Dell’s continued involvement with the Company was essential.  Moreover, Mr. Dell 
appeared willing to work with any viable party.72 
In light of these apparent flaws in the sale process, both pre- and post-signing, the 
trial court found that the Company failed to establish that “the sale process offers the most 
reliable evidence of the Company’s value as a going concern.”73  Moreover, the Court of 
Chancery decided that “[b]ecause it is impossible to quantify the exact degree of the sale 
process mispricing,” it was going to discount the final merger consideration of $13.75 
entirely—giving it no weight when determining fair value.74  
                                              
70 Id. at *42-43.   
71 Id. at *44.  
72 See id. 
73 Id. 
74 Id. at *51.   
 
27 
 
But, given that the trial court deemed it “illogical” to believe that another bidder 
would not have topped the Buyout Group’s offer if the Company were actually worth the 
$28.61 per share advocated by the petitioners,75 the Court of Chancery rejected petitioners’ 
DCF and arrived at its “fair value” determination of $17.62 per share through its own DCF 
analysis, using a mix of the inputs proposed by the petitioners’ and the Company’s experts 
and adjustments of its own.    
F. 
This Appeal 
The Company argues that the trial court committed legal error and abused its 
discretion in failing to assign any weight to the deal price.  On both fronts, the Company 
claims that the trial court erred by disregarding Section 262(h)’s requirement that it “take 
into account all relevant factors” in determining fair value.  
The Company articulates three reasons why it believes the trial court committed 
legal error.  First, the Company argues that there is no requirement under Delaware law 
that the deal price be the “most reliable” or “best” evidence of fair value in order for it to 
be given any weight.  Second, the Company posits that there is no requirement under 
Delaware law that the Court of Chancery disregard the deal price entirely if it cannot 
unequivocally quantify the precise amount of sale process mispricing.  Third, the Company 
contends that the trial court erred in fashioning what seems akin to a bright-line rule that 
the deal prices in MBO transactions are distorted and should be disregarded.  Dell states 
                                              
75 Id. at *37. 
 
28 
 
that imposing such a rule would be “inconsistent with the flexible nature of the appraisal 
inquiry.”76 
Moreover, the Company notes that the trial court’s conclusions underpinning its 
decision to disregard deal price do not follow from the facts as found.  In particular, the 
Company maintains that the trial court lacked a basis for finding that:  the market for Dell’s 
stock was inefficient due to the alleged short-term focus of the Company’s investor base, 
yielding a valuation gap between Dell’s market value and its intrinsic value; the pre-signing 
phase lacked “meaningful price competition” because those involved in the sale process 
were fixated on determining a deal price that would generate the requisite IRR under the 
LBO model, and there were no strategic bidders involved; banks were reluctant to help 
finance the deal through debt, limiting the available leverage and therefore capping the deal 
price; the emergence of “topping bids” underscored the unfairness of the original merger 
consideration; and features endemic to MBO go-shops additionally distorted the relevance 
of the deal price.  Thus, the Company argues that the trial court’s entire reasoning for 
assigning no weight to the deal price was based either on flawed premises or on theoretical 
constructs that lack support in this factual record.  
 
The Company also argues that, even if the trial court had a sound factual basis for 
disregarding the deal price entirely, its DCF analysis is flawed in three crucial ways: (1) it 
does not properly account for the Company’s FIN 48 contingent liability reserve because 
it deducts only $650 million instead of the actual $3.01 billion in the Company’s financial 
                                              
76 Appellant’s Opening Br. at 26. 
 
29 
 
statements; (2) it fails to deduct taxes that would be due on foreign earnings if repatriated 
even though the trial court counted these earnings in calculating free cash flow; and (3) it 
employs the wrong tax rate in calculating the terminal value, the 21% effective tax rate 
instead of the marginal tax rate of 35.8%.  
 
In response, the petitioners argue that the Court of Chancery did consider “all 
relevant factors”—including the deal price—in determining fair value as the Court of 
Chancery outlined a litany of reasons why the sale process distorted the deal price’s worth 
as a proxy for fair value.  Petitioners contend that the Company is itself the party advocating 
for an “inflexible bright-line rule” given that the Company seems to suggest that the Court 
of Chancery was required to “assign some mathematical weight to the deal price” in 
determining fair value.77  The petitioners observe that this Court has previously rejected 
that formalism in light of the language of Section 262.  
 
The petitioners also cross-appeal and argue that the trial court’s DCF analysis is 
flawed in two respects: (1) it wrongly accepts the adjustments to management projections 
advocated by the Company; and (2) it improperly includes two deductions, namely a 
working capital deduction of $3 billion (despite Dell’s history of funding its operations 
through free cash flow) and $1.2 billion in restricted cash. 
II. 
Analysis 
We agree with petitioners that the trial court did consider all relevant factors 
presented, including Dell’s stock price and deal price.  But we reverse because the 
                                              
77 Appellees/Cross-Appellants’ Ans. Br. and Opening Br. on Cross-Appeal at 3, 44.  
 
30 
 
reasoning behind the trial court’s decision to give no weight to any market-based measure 
of fair value runs counter to its own factual findings.  After reviewing our appraisal statute 
and accompanying jurisprudence, we explore why the facts fail to support the Court of 
Chancery’s reasoning for disregarding, in particular, the deal price.  To the extent the trial 
court can justify giving any weight to its DCF analysis on remand, we conclude that, for 
the most part, the trial court did not abuse its discretion as to the asserted errors.  
A. 
The Relevant Legal Framework 
 
The General Assembly created the appraisal remedy in 1899 after amending the 
corporate code to allow a corporation to be sold upon the consent of a majority of 
stockholders instead of unanimous approval as was previously required.78  Given that a 
single shareholder could no longer hold up the sale of a company, the General Assembly 
devised appraisal in service of the notion that “the stockholder is entitled to be paid for that 
which has been taken from him.”79  Stockholders who viewed the sale price as inadequate 
could seek “an independent judicial determination of the fair value of their shares” instead 
                                              
78 Hon. Sam Glasscock III, Ruminations on Appraisal, Del. Lawyer, Summer 2017, at 8; Charlotte 
K. Newell, The Legislative Origins of Today’s Appraisal Debate, Del. Lawyer, Summer 2017, at 
12-13.  
79 Tri-Continental Corp. v. Battye, 74 A.2d 71, 72 (Del. 1950).  In DFC, we stated that the purpose 
of appraisal is to “make sure that [stockholders] receive fair compensation for their shares in the 
sense that it reflects what they deserve to receive based on what would fairly be given to them in 
an arm’s-length transaction.” 2017 WL 3261190, at *18. 
 
31 
 
of accepting the per-share merger consideration.80  There is one issue in an appraisal trial: 
“the value of the dissenting stockholder’s stock.”81 
 
Appraisals are odd.  Unlike other cases, where one side loses if the other side fails 
to persuade the court that the evidence tilts its way,82 appraisals require the court to 
determine a number representing the fair value of the shares after considering the trial 
presentations and submissions of parties who have starkly different objectives: petitioners 
contend fair value far exceeds the deal price, and the company argues that fair value is the 
deal price or lower.  In reality, the burden “falls on the [trial] judge to determine fair value, 
using ‘all relevant factors.’”83 
                                              
80 Alabama By-Prod. Corp. v. Cede & Co., 657 A.2d 254, 258 (Del. 1995); Cede & Co. v. 
Technicolor, Inc., 542 A.2d 1182, 1186 (Del. 1988) (“An appraisal proceeding is a limited 
legislative remedy intended to provide shareholders dissenting from a merger on grounds of 
inadequacy of the offering price with a judicial determination of the intrinsic worth (fair value) of 
their shareholdings.”).  
81 Technicolor, 542 A.2d at 1186 (quoting Kaye v. Pantone, Inc., 395 A.2d 369, 374-75 (Del. Ch. 
1978)). 
82 M.G. Bancorp., 737 A.2d at 520 (“In a statutory appraisal proceeding, both sides have the burden 
of proving their respective valuation positions by a preponderance of the evidence.”). 
83 In re Appraisal of Ancestry.com, 2015 WL 399726, at *1 (Del. Ch. Jan. 30, 2015) (quoting 8 
Del. C. § 262(h)); Eric L. Talley, Finance in the Courtroom: Appraising Its Growing Pains, Del. 
Lawyer, Summer 2017, at 16-17 (“[U]nlike highly trained (and highly remunerated) investment 
bankers — whose job requires generating a ‘football field’ range of discounted cash flow (DCF) 
valuations — a judge presiding over an appraisal proceeding must conjure up a single number at 
the end of the process.”). 
 
32 
 
Though the appraisal remedy is “entirely a creature of statute,”84 like most statutes, 
its specifics have been refined through years of judicial interpretation.  Indeed, “fair value” 
has become a “jurisprudential, rather than purely economic, construct.”85  
Importantly for our purposes here, Section 262 provides that the Court of Chancery 
“shall determine the fair value of the shares exclusive of any element of value arising from 
the accomplishment or expectation of the merger or consolidation” plus interest.86  Equally 
critical is its requirement that, “[i]n determining such fair value, the Court shall take into 
account all relevant factors.”87  These provisions explain “what” the Court is valuing, and 
“how” the court should go about this task.   
i. 
“What” the Court is Valuing 
We have explained that the court’s ultimate goal in an appraisal proceeding is to 
determine the “fair or intrinsic value” of each share on the closing date of the merger.88  To 
reach this per-share valuation, the court should first envisage the entire pre-merger 
company as a “going concern,” as a standalone entity, and assess its value as such.89  “[T]he 
corporation must be viewed as an on-going enterprise, occupying a particular market 
                                              
84 Alabama By-Prod. v. Cede, 657 A.2d at 258 (quoting Alabama By-Prod. Corp. v. Neal, 588 
A.2d 255, 256 (Del. 1991)).  
85 DFC, 2017 WL 3261190, at *16 (citing Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1144 
(Del. 1989)).  
86 8 Del. C. § 262(h). 
87 Id.  
88 Cavalier Oil, 564 A.2d at 1142-43. 
89 Id. at 1144 (“The dissenting shareholder’s proportionate interest is determined only after the 
company as an entity has been valued.”).    
 
33 
 
position in the light of future prospects.”90  The valuation should reflect the “‘operative 
reality’ of the company as of the time of the merger.”91  
Because the court strives “to value the corporation itself, as distinguished from a 
specific fraction of its shares as they may exist in the hands of a particular shareholder,” 
the court should not apply a minority discount when there is a controlling stockholder. 92  
Further, the court should exclude “any synergies or other value expected from the merger 
giving rise to the appraisal proceeding itself.”93 
Then, once this total standalone value is determined, the court awards each 
petitioning stockholder his pro rata portion of this total—“his proportionate interest in [the] 
going concern”94 plus interest.  
 
 
                                              
90 Shell Oil, 607 A.2d at 1218. 
91 M.G. Bancorp., 737 A.2d at 525. 
92 Cavalier Oil, 564 A.2d at 1144 (internal quotation marks omitted).  
93 Global GT LP v. Golden Telecom, Inc., 993 A.2d 497, 507 (Del. Ch. 2010), aff’d, 11 A.3d 214 
(Del. 2010); DFC, 2017 WL 3261190, at *16 (The Court should exclude “any value that the selling 
company’s shareholders would receive because a buyer intends to operate the subject company, 
not as a stand-alone going concern, but as a part of a larger enterprise, from which synergistic 
gains can be extracted.” (quoting Union Ill. 1995 Inv. LP v. Union Fin. Grp., Ltd, 847 A.2d 340, 
356 (Del. Ch. 2004))).  As noted in DFC, there are policy reasons for excising the synergistic 
value: “the specific buyer [should] not end up losing its upside for [the] purchase by having to pay 
out the expected gains from its own business plans for the company it bought to the petitioners.”  
2017 WL 3261190, at *16.   Further, “the broader excision of synergy gains could have also been 
thought of as a balance to the Court’s decision to afford pro rata value to minority stockholders.” 
Id. 
94 Cavalier Oil, 564 A.2d at 1144 (quoting Tri-Continental, 74 A.2d at 72). 
 
34 
 
ii. 
“How” the Court Should Approach Valuation 
By instructing the court to “take into account all relevant factors” in determining 
fair value, the statute requires the Court of Chancery to give fair consideration to “proof of 
value by any techniques or methods which are generally considered acceptable in the 
financial community and otherwise admissible in court.”95  Given that “[e]very company 
is different; every merger is different,”96 the appraisal endeavor is “by design, a flexible 
process.”97 
This Court has relied on the statutory requirement that the Court of Chancery 
consider “all relevant factors” to reject requests for the adoption of a presumption that the 
deal price reflects fair value if certain preconditions are met, such as when the merger is 
the product of arm’s-length negotiation and a robust, non-conflicted market check, and 
where bidders had full information and few, if any, barriers to bid for the deal.98  In Golden 
Telecom, we explained that Section 262(h) is “unambiguous[]” in its command that the 
Court of Chancery undertake an “independent” assessment of fair value, and that the statute 
“vests the Chancellor and Vice Chancellors with significant discretion to consider ‘all 
                                              
95 Weinberger v. UOP, 457 A.2d 701, 713 (Del. 1983). 
96 In re Petsmart, 2017 WL 2303599, at *26 (Del. Ch. May 26, 2017). 
97 Golden Telecom, Inc. v. Global GT LP, 11 A.3d 214, 218 (Del. 2010). 
98 See DFC, 2017 WL 3261190, at *1 (“We decline to engage in that act of creation, which in our 
view has no basis in the statutory text, which gives the Court of Chancery in the first instance the 
discretion to ‘determine the fair value of the shares’ by taking into account ‘all relevant factors.’” 
(quoting 8 Del. C. § 262(h)). 
 
35 
 
relevant factors’ and determine the going concern value of the underlying company.”99  In 
DFC, we again rejected an invitation to create a presumption in favor of the deal price.100  
Even aside from the statutory command to consider all relevant factors, we doubted our 
ability to craft the precise preconditions for invoking such a presumption.101 
 As such, “the trial of an appraisal case under the Delaware General Corporation 
Law presents unique challenges to the judicial factfinder.”102  And this task is complicated 
by “the clash of contrary, and often antagonistic, expert opinions of value,” prompting the 
trial court to wade through “widely divergent views reflecting partisan positions” in 
arriving at its determination of a single number for fair value.103 
In the end, after this analysis of the relevant factors, “[i]n some cases, it may be that 
a single valuation metric is the most reliable evidence of fair value and that giving weight 
to another factor will do nothing but distort that best estimate.  In other cases, it may be 
necessary to consider two or more factors.”104  Or, in still others, the court might apportion 
                                              
99 11 A.3d at 217-18.   
100 DFC, 2017 WL 3261190, at *15. 
101 Id. (“[N]ot only do we see no license in the statute for creating a presumption that the resulting 
price in such a situation is the ‘exclusive,’ ‘best,’ or ‘primary’ evidence of fair value, we do not 
share DFC’s confidence in our ability to craft, on a general basis, the precise pre-conditions that 
would be necessary to invoke a presumption of that kind.”). 
102 Petsmart, 2017 WL 2303599, at *1 (citing Ancestry.com, 2015 WL 399726, at *2). 
103 Shell Oil, 607 A.2d at 1222. 
104 DFC, 2017 WL 3261190, at *31; see also M.G. Bancorp., 737 A.2d at 525-26 (“[T]he Court 
of Chancery has the discretion to select one of the parties’ valuation models as its general 
framework or to fashion its own.”); id. at 526 (“[A]lthough not required to do so, it is entirely 
proper for the Court of Chancery to adopt any one expert’s model, methodology, and mathematical 
calculations, in toto, if that valuation is supported by credible evidence and withstands a critical 
judicial analysis on the record.”).  
 
36 
 
weight among a variety of methodologies.  But, whatever route it chooses, the trial court 
must justify its methodology (or methodologies) according to the facts of the case and 
relevant, accepted financial principles.105  
Given the human element in the appraisal inquiry—where the factfinder is asked to 
choose between two competing, seemingly plausible valuation perspectives, forge its own, 
or apportion weight among a variety of methodologies—it is possible that a factfinder, 
even the same factfinder, could reach different valuation conclusions on the same set of 
facts if presented differently at trial.106  There may be no perfect methodology for arriving 
at fair value for a given set of facts, and the Court of Chancery’s conclusions will be upheld 
                                              
105 The statute does not instruct the Court of Chancery to create an investment bank-like football 
field and use it to come to a formulaic determination of value.  In many situations, certain valuation 
methods (e.g., comparables-based analysis) may be of no reliable utility.  Our cases stress that the 
statute assigns the Court of Chancery the duty to consider the relevant methods of valuation argued 
by the parties and then determine which method (and inputs), or combination of methods, yields 
the most reliable determination of value.  See also DFC, 2017 WL 3261190, at *3 (“[I]f the Court 
of Chancery chooses to use a weighting of different valuation methodologies to reach its fair value 
determination, the court must explain its weighting in a manner supported by the record before 
it.”); id. at *31 (“[T]he Court of Chancery must exercise its considerable discretion while also 
explaining, with reference to the economic facts before it and corporate finance principles, why it 
is according a certain weight to a certain indicator of value.”). 
106 M.G. Bancorp., 737 A.2d at 526 (“The Court of Chancery’s role as an independent appraiser 
does not necessitate a judicial determination that is completely separate and apart from the 
valuations performed by the parties’ expert witnesses who testify at trial. It must, however, 
carefully consider whether the evidence supports the valuation conclusions advanced by the 
parties’ respective experts.”); see also Petsmart, 2017 WL 2303599, at *27 n.338 (“My analysis 
of the reliability of deal price as a product of the efficacy of the sales process necessarily has been 
shaped by the arguments of counsel and the evidence they chose to present at trial.”); Merion 
Capital L.P. v. Lender Processing Servs., 2016 WL 7324170, at *16 (Del. Ch. Dec. 16, 2016) (“An 
argument may carry the day in a particular case if counsel advance it skillfully and present 
persuasive evidence to support it.  The same argument may not prevail in another case if the 
proponents fail to generate a similarly persuasive level of probative evidence or if the opponents 
respond effectively.”). 
 
37 
 
if they follow logically from those facts and are grounded in relevant, accepted financial 
principles.107  “To be sure, “fair value” does not equal “best value.”108 
B. 
The Court of Chancery’s Reasons for Disregarding 
Deal Price Do Not Follow from the Record  
The Company recasts the Court of Chancery’s fair value opinion as creating several 
bright-line rules, including that the court must assign no weight to the deal price if: (i) it is 
not the “best” evidence of fair value; (ii) the court cannot “quantify the exact degree of the 
sale process mispricing”; or (iii) the transaction is an MBO.  And the Company argues that 
each such rule is flawed.  Setting aside whether the Court of Chancery’s opinion actually 
purports to assert these more generalized propositions, we agree with the Company’s core 
premise that, on this particular record, the trial court erred in not assigning any 
mathematical weight to the deal price.  In fact, the record as distilled by the trial court 
suggests that the deal price deserved heavy, if not dispositive, weight. 
                                              
107 DFC, 2017 WL 3261190, at *1 (“[T]his Court must give deference to the Court of Chancery if 
its determination of fair value has a reasonable basis in the record and in accepted financial 
principles relevant to determining the value of corporations and their stock.”); id. at *20 
(“Although the Court of Chancery has broad discretion to make findings of fact, those findings of 
fact have to be grounded in the record and reliable principles of corporate finance and 
economics.”).  
108 See id. at *18.  Rather, as framed in another context, a fair price “means a price that is one that 
a reasonable seller, under all of the circumstances, would regard as within a range of fair value; 
one that such a seller could reasonably accept.”  Id. (quoting Cinerama, Inc. v. Technicolor, Inc., 
663 A.2d 1134, 1143 (Del. Ch. 1994), aff’d, 663 A.2d 1156 (Del. 1995)).  And “[t]he fact that a 
transaction price was forged in the crucible of objective market reality (as distinguished from the 
unavoidably subjective thought process of a valuation expert) is viewed as strong evidence that 
the price is fair.”  Van de Walle v. Unimation, Inc., 1991 WL 29303, at *17 (Del. Ch. Mar. 7, 
1991).  See also Applebaum v. Avaya, Inc., 812 A.2d 880, 889-90 (Del. 2002) (stating that “in 
many circumstances a property interest is best valued by the amount a buyer will pay for it” and 
“a well-informed, liquid trading market will provide a measure of fair value superior to any 
estimate the court could impose.”).   
 
38 
 
On the other hand, we also agree with the petitioners that there is no requirement 
that the court assign some mathematical weight to the deal price, and that the court fulfilled 
its statutory obligation to take into account the deal price.  The trial court’s thorough 
examination of Dell’s stock market dynamics and sale process demonstrates its 
consideration of these factors.  But we reverse because there is a dissonance between the 
key underpinnings of the decision to disregard the deal price and the facts as found, and 
this dissonance distorted the trial court’s analysis of fair value. 
The three central premises that the Court of Chancery relied upon to assign no 
weight to the deal price were flawed.  First, the court believed that a “valuation gap” existed 
between Dell’s stock price and the Company’s intrinsic value, and this conclusion—
contrary to the efficient market hypothesis—led it to hypothesize that the bidding over Dell 
as a company was anchored at an artificially low price that depressed the ultimate deal 
price below fair value.  Second, the court suggested that the lack of strategic buyers in the 
sale process—and, accordingly, the involvement of only private equity bidders—also 
pushed the deal price below fair value.  Third, the court concluded that several factors 
endemic to MBO go-shops further undercut the deal price’s credibility.  We consider each 
of these premises in turn and find them untenable in view of the Court of Chancery’s own 
findings of fact as considered in light of established principles of corporate finance.  
Without these premises, the trial court’s support for disregarding the deal price collapses.  
 
39 
 
Accordingly, the trial court’s reliance on them as a basis for granting no weight to the 
market-based indicators of value constituted an abuse of discretion meriting reversal.109   
i. 
The Trial Court Lacked a Valid Basis for Finding a 
“Valuation Gap” Between Dell’s Market and Fundamental 
Values  
The Court of Chancery presumed “investor myopia” and hangover from the 
Company’s “nearly $14 billion investment in its transformation, which had not yet begun 
to generate the anticipated results” produced a “valuation gap” between Dell’s fundamental 
and market prices.  That presumption contributed to the trial court’s decision to assign no 
weight to Dell’s stock price or deal price.110  The trial court believed that short-sighted 
analysts and traders impounded an inadequate—and lowball—assessment of all publicly 
available information into Dell’s stock price, diminishing its worth as a valuation tool.111  
But the record shows just the opposite: analysts scrutinized Dell’s long-range outlook when 
evaluating the Company and setting price targets, and the market was capable of 
accounting for Dell’s recent mergers and acquisitions and their prospects in its valuation 
of the Company.112   
                                              
109 See Rapid-Am. Corp. v. Harris, 603 A.2d 796, 802 (Del. 1992) (“A court abuses its discretion 
in an appraisal proceeding when its factual findings do not have record support and its valuation 
is not the result of an orderly and logical deductive process.”). 
110 Dell Trial Fair Value, 2016 WL 3186538, at *32, *34. 
111 Id. at *33.  
112 See, e.g., Jefferies (May 11, 2012), at A3282 (“With half of Dell’s sales still exposed to the PC 
market, the continuing degradation remains a worry.  Recent software acquisitions provide 
tailwinds but in terms of size are unlikely as a whole to be big enough to completely move the 
needle.”); Barclays (May 14, 2012), at A3426 (“We believe the biggest issues facing the stock 
include secular challenges in PCs, inconsistent margins & acquisition risk.”); Goldman Sachs 
(Sept. 27, 2012), at A3427 (“We believe that PC OEMs such as Hewlett-Packard and Dell, will 
 
40 
 
Further, the Court of Chancery’s analysis ignored the efficient market hypothesis 
long endorsed by this Court.  It teaches that the price produced by an efficient market is 
generally a more reliable assessment of fair value than the view of a single analyst, 
especially an expert witness who caters her valuation to the litigation imperatives of a well-
heeled client.113   
A market is more likely efficient, or semi-strong efficient, if it has many 
stockholders; no controlling stockholder; “highly active trading”; and if information about 
the company is widely available and easily disseminated to the market.114  In such 
circumstances, a company’s stock price “reflects the judgments of many stockholders 
about the company’s future prospects, based on public filings, industry information, and 
research conducted by equity analysts.”115  In these circumstances, a mass of investors 
                                              
remain under significant pressure, as weak unit growth, aggressive PC pricing, and relatively firm 
component prices (particularly HDDs) combine to pressure both revenues and margins.”); Cowen 
(Nov. 16, 2012), at A3427 (“Dell’s PC issues are unlikely to be solved by the Windows 8 launch 
as the market’s structure has fundamentally shifted away from the paradigm that dominated the 
last two decades.”); Goldman Sachs (Dec. 2, 2012), at A3832 (“Dell still likely has billions more 
in acquisitions ahead of it if it plans on fully executing on its mission to become an enterprise 
solutions company.”). 
113 See DFC, 2017 WL 3261190, at *18 (also noting that “the relationship between market 
valuation and fundamental valuation has been strong historically”); id. at *21 (describing the price 
produced by an efficient market as “informative of fair value”); id. at *21 n.144 (“In an efficient 
market you can trust prices, for they impound all available information about the value of each 
security.” (quoting Richard A. Brealey et. al., Principles of Corporate Finance 214 (2008))).  And, 
even if the market were not precisely efficient, petitioners’ own expert has conceded that “[a] 
market that is not perfectly efficient may still value securities more accurately than appraisers who 
are forced to work with limited information and whose judgments by nature reflect their own views 
and biases.”  Bradford Cornell, Corporate Valuation 46 (1993). 
114 DFC, 2017 WL 3261190, at *21.  
115 Id.  
 
41 
 
quickly digests all publicly available information about a company, and in trading the 
company’s stock, recalibrates its price to reflect the market’s adjusted, consensus valuation 
of the company.116 
The record before us provides no rational, factual basis for such a “valuation gap.”  
Indeed, the trial court did not indicate that Dell lacked a vast and diffuse base of public 
stockholders, that information about the Company was sparse or restricted, that there was 
not an active trading market for Dell’s shares, or that Dell had a controlling stockholder—
or that the market for its stock lacked any of the hallmarks of an efficient market.  In fact, 
the record shows that Dell had a deep public float,117 was covered by over thirty equity 
analysts in 2012,118 boasted 145 market makers,119 was actively traded with over 5% of 
shares changing hands each week,120 and lacked a controlling stockholder.121  As noted in 
the expert reports, Dell’s stock price had a track record of reacting to developments 
                                              
116 Id. at *18 (“[C]orporate finance theory reflects a belief that if an asset—such as the value of a 
company as reflected in the trading value of its stock—can be subject to close examination and 
bidding by many humans with an incentive to estimate its future cash flows value, the resulting 
collective judgment as to value is likely to be highly informative and that, all estimators having 
equal access to information, the likelihood of outguessing the market over time and building a 
portfolio of stocks beating it is slight.”). 
117 Dell’s Valuation Expert Report, supra note 4, at A3423 (public float averaging 84.29% in 
2012).  
118 Id. at A3424. 
119 Id. 
120 Id. at A3423. 
121 M. Dell Testimony, supra note 18, at A610; Transcript of Guhan Subramanian Trial Testimony 
(Oct. 7, 2015), at A998. 
 
42 
 
concerning the Company.  For example, the stock climbed 13% on the day the Bloomberg 
first reported on Dell’s talks of going private.122 
Further, the trial court expressly found no evidence that information failed to flow 
freely or that management purposefully tempered investors’ expectations for the Company 
so that it could eventually take over the Company at a fire-sale price, as in situations where 
long-term investments actually led to such valuation gaps.123  In fact, Mr. Dell tried to 
persuade investors to envision an enterprise solutions and services business enjoying 
double-digit sales growth and which would more than compensate for any decline in end-
user computing.124  And he pitched this plan for a “prolonged” period, approaching nearly 
three years.125 
                                              
122 Dell’s Valuation Expert Report, supra note 4, at A3305-06.  
123 Dell Trial Fair Value, 2016 WL 3186538, at *24; id. at *34 (“Only when the gap persisted 
despite their efforts, and after both Southeastern and Silver Lake suggested the possibility of an 
MBO to Mr. Dell, did he eventually decide to pursue the opportunity that the market price was 
presenting.”).  
124 Id. at *2 (“Mr. Dell conferred with his management team and hired consultants to devise 
strategies to help the market view the Company as ‘a sum of the parts.’  Mr. Dell regularly 
communicated his views to analysts.”).  
125 See id. at *34 (“Mr. Dell identified the opportunity to take the Company private after the stock 
market failed to reflect the Company’s going concern value over a prolonged period [of almost 
three years, beginning] . . . as early as January 2011.”); id. at *15 (“Mr. Dell[] . . .  was focused on 
a long-term strategy of stabilizing revenues and capturing market share at the expense of short-
term margins, just as he repeatedly had told the Board, the Committee, and stock market 
analysts.”).  
 
43 
 
There is also no evidence in the record that investors were “myopic” or shortsighted.  
Rather, the record shows analysts understood Dell’s long-term plans.126  But they just 
weren’t buying Mr. Dell’s story:  
 “Though Dell may have an advantage in the near term with its new next-gen 
12G servers, we believe over the longer run, incremental shares gain in the x86 
market will likely be limited.  As such, we expect Dell’s server business to grow 
roughly in line with the market.” (Wells Fargo, June 27, 2012, at A3429) 
 
 “Top-tier OEMs continued to lose market share to white-box vendors, shedding 
85 basis points of revenue share at 111 points of unit share [year-over-year].  As 
we have mentioned before, in the longer term we expect that this dynamic will 
continue, further pressuring x86 units and revenues for top-tier OEMs, while 
adding further forces of commoditization across the x86 server market.”  
(Goldman Sachs, Sept. 10, 2012, at A3429) 
 
 “While the company remains optimistic that recent enhancements to its storage 
portfolio could rekindle growth when demand improves, Dell’s slowing 
momentum here remains a factor to watch.”  (Goldman Sachs, Nov. 16, 2012, at 
A3430) 
 
 “We see risks for Dell including cyclical global PC and enterprise IT markets, 
including slowing in mature geographies, combined with competitive pricing 
and margin pressures from both large systems peers and aggressive commodity 
suppliers.  PC unit and margin risks also include underlying dynamics in volume 
component supply.” (Evercore, Nov. 16, 2012, at A3430) 
 
 “While we acknowledge Dell’s enterprise strategy, we still have concerns 
around whether it can ramp fast enough to offset pressures in PC-related 
businesses, including PC support and related sales of peripherals.” (Barclays, 
Dec. 3, 2012, at A3430) 
 
                                              
126 Id. at *2 (“Market observers expressed doubt about management’s projections.”); id. (“The 
Company’s market price suggested that the marginal purchaser shared the analysts’ skepticism.”).  
 
44 
 
The Court of Chancery’s myopia theory also overlooks that, at an earlier stage in its 
history, Dell was a growth stock trading at large multiples to its then-current cash flow.127  
That is, for much of its history, analysts bought Mr. Dell’s long-term vision.  But, by the 
early years of the second decade of the 21st century, they were no longer doing so.128 
Further, the prospective bidders who later reviewed Dell’s confidential information 
all dropped out due to their considerable discomfort with the future of the PC market.  The 
record simply does not support the Court of Chancery’s favoring of management’s 
optimism over the public analysts’ and investors’ skepticism—especially in the face of 
management’s track record of missing its own projections.129  (Even Mr. Dell doubted his 
management team’s forecasting abilities and conceded at trial, “We’re not very good at 
forecasting.”)130  And the Court of Chancery does not justify why it chose to do so.  In 
                                              
127 In 1999, Dell’s “earnings multiple”—its enterprise value (the market value of the company’s 
equity plus the company’s debt minus its cash) divided by its Earnings Before Interest Taxes 
Depreciation and Amortization (or “EBITDA”)—was almost sixty.  In contrast, by 2013, Dell’s 
EV/EBITDA ratio hovered between four and five.  See Dell’s Valuation Expert Report, supra note 
4, at A3295-96, A3300. 
128 See id. at A3300 (showing that Dell’s EV/EBITDA ratio remained around or above twenty 
between 1998 and 2005 and that the ratio has remained under ten since 2009). 
129 See id. at *2, *6, *8.  Management’s history of missing its forecasts should have given the Court 
of Chancery pause.  See, e.g., In re Nine Sys. Corp. S’holders Litig., 2014 WL 4383127, at *42 
(Del. Ch. Sept. 4, 2014) (“The Court cannot accept that the same people who missed projections 
three-months out in September 2001 by a factor of three (where there was no intervening change 
to the Company’s business) would have been able to produce reliable projections in January 2002 
for an entire year.”), aff’d sub nom. Fuchs v. Wren Holdings, LLC, 129 A.3d 882 (Del. 2015); 
Edward P. Welch et al., Folk on the Delaware General Corporation Law § 262.10, at 9-232 (6th 
ed. 2017) [hereinafter Folk]  (“[T]he court will not use management projections in its valuations 
if the record shows they are unreliable.”). 
130 M. Dell Testimony, supra note 18, at A605.  Mr. Dell added: 
I think we weren’t the only ones that were bad at forecasting.  I think Gartner Group 
and IDC, and many of the financial analysts and our competitors, you know, all had 
 
45 
 
short, the record does not adequately support the Court of Chancery’s conclusion that the 
market for Dell’s stock was inefficient and that a valuation gap in the Company’s market 
trading price existed in advance of the lengthy market check, an error that contributed to 
the trial court’s decision to disregard the deal price.131  
ii. 
The Lack of Strategic Bidders Is Not a Credible Reason for 
Disregarding the Deal Price 
The trial court’s complete discounting of the deal price due to financial sponsors’ 
focus on obtaining a desirable IRR and not “fair value” was also error.  Although the trial 
court did not have the benefit of our opinion in DFC, we rejected this view there and do so 
again here given we see “no rational connection” between a buyer’s status as a financial 
sponsor and the question of whether the deal price is a fair price.132  After all, “all 
disciplined buyers, both strategic and financial, have internal rates of return that they expect 
                                              
a pretty difficult time forecasting what was an uncertain and volatile business, with 
many, you know, changing factors, new products being introduced, all sorts of 
competitive forces that were hard to predict.  And we were not very good at doing 
it. 
Id. at A605-06.  
131 This is evident as the court observed that the stock price anchors negotiations and, if the stock 
price is low, the deal price necessarily might be low.  See Dell Trial Fair Value, 2016 WL 3186538, 
at *33 (“When a company with a depressed market price starts a sale process, the anchoring effect 
makes the process intuitively more likely to generate an undervalued bid.”).  
132 DFC, 2017 WL 3261190, at *22; id. at *2 (“To be candid, we do not understand the logic of 
[diminishing the weight of a sale process that involved only financial sponsors and not strategic 
buyers].  Any rational purchaser of a business should have a targeted rate of return that justifies 
the substantial risks and costs of buying a business.  That is true for both strategic and financial 
buyers.  It is, of course, natural for all buyers to consider how likely a company’s cash flows are 
to deliver sufficient value to pay back the company’s creditors and provide a return on equity that 
justifies the high costs and risks of an acquisition.”). 
 
46 
 
in exchange for taking on the large risk of a merger, or for that matter, any sizeable 
investment of its capital.”133 
We found in DFC that the notion of a “private equity carve out” stood on especially 
shaky footing where other objective indicia suggested the deal price was a fair price.134  
Such objective factors in DFC included that “every logical buyer” was canvassed, and all 
but the buyer refused to pursue the company when given the opportunity; concerns about 
the company’s long-term viability (and its long-term debt’s placement on negative credit 
watch) prevented lenders from extending debt; and the company repeatedly 
underperformed its projections.135  
Here, it is clear that Dell’s sale process bore many of the same objective indicia of 
reliability that we found persuasive enough to diminish the resonance of any private equity 
carve out or similar such theory in DFC.  For example, JPMorgan and Evercore 
choreographed the sale process to involve competition with Silver Lake at every stage, both 
pre-signing and during the go-shop.  When KKR walked, TPG, another major-league PE 
buyer, was introduced.  And both KKR and TPG demurred for many of the objective 
reasons that the stock market—and, later, Blackstone—doubted Dell’s ability to transform 
itself and become more profitable.  
                                              
133 Id. at *22; see also id. at *2 (“The ‘private equity carve out’ that the Court of Chancery seemed 
to recognize, in which the deal price resulting in a transaction won by a private equity buyer is not 
a reliable indication of fair value, is not one grounded in economic literature or this record.”). 
134 Id. at *22.  
135 Id. at *22-23. 
 
47 
 
Moreover, JPMorgan did not initially solicit the interest of strategic bidders because 
its analysis suggested none was likely to make an offer.136  Further, given leaks that Dell 
was exploring strategic alternatives, record testimony suggests that Evercore presumed that 
any interested parties would have approached the Company before the go-shop if serious 
about pursuing a deal.137 
The Committee, composed of independent, experienced directors and armed with 
the power to say “no,” persuaded Silver Lake to raise its bid six times.  Nothing in the 
record suggests that increased competition would have produced a better result.  JPMorgan 
also reasoned that any other financial sponsor would have bid in the same ballpark as Silver 
Lake.138      
The bankers canvassed the interest of sixty-seven parties, including twenty possible 
strategic acquirers during the go-shop.  The go-shop’s forty-five-day window afforded 
potential bidders enough time to decide whether to continue to explore a transaction by 
submitting a non-binding indication of interest that qualified as a “Superior Proposal,” 
which accordingly would lower the termination fee from $450 million to $180 million 
thanks to “Excluded Party” status and give that party months to scrutinize the Company’s 
finances and growth prospects.  The trial court acknowledged, “the steps to become an 
                                              
136 Transcript of Ronald Nicol Trial Testimony (Oct. 6, 2015), at A705; Transcript of Drago 
Rajkovic Trial Testimony (Oct. 7, 2015), at A907. 
137 Hiltz Testimony, supra note 37, at A516.  
138 Dell Trial Fair Value, 2016 WL 3186538, at *9. 
 
48 
 
‘Excluded Party’ were also relatively few.”139  And the court even endorsed the go-shop’s 
overall design as “rais[ing] fewer structural barriers than the norm” and both “relatively 
open” and “relatively flexible.”140  Further, Evercore’s compensation was “tied directly to 
the success of the go-shop,” incentivizing it to make the go-shop as effective as possible.141 
The likeliest strategic bidder, HP, signed a confidentiality agreement during the go-
shop, but it did not even log into the data room.  Three parties signed non-binding initial 
expressions of interest: Blackstone, Icahn, and GE Capital.142  Yet, despite the quality of 
the go-shop’s design, the Court of Chancery believed that, given Dell’s complexity as a 
company, “the magnitude of the task” of conducting diligence on it might have had “a 
chilling effect on other parties,” without citing any evidence that any other party would 
have been interested.143  Regardless, interested parties did not need to complete diligence 
within the go-shop’s forty-five-day window.   
The Court of Chancery stressed its view that the lack of competition from a strategic 
buyer lowered the relevance of the deal price.  But its assessment that more bidders—both 
strategic and financial—should have been involved assumes there was some party 
interested in proceeding.  Nothing in the record indicates that was the case.  Fair value 
                                              
139 Id. at *40.  
140 Id. at *40-41.  
141 Hiltz Testimony, supra note 37, at A514; Rebuttal Report of Professor Guhan Subramanian 
(July 24, 2015), at B1902, B1903-05 [hereinafter Petitioners’ Deal Process Expert Report].  
142 Dell Trial Fair Value, 2016 WL 3186538, at *42.  
143 Id. 
 
49 
 
entails at minimum a price some buyer is willing to pay—not a price at which no class of 
buyers in the market would pay.144   The Court of Chancery ignored an important reality: 
if a company is one that no strategic buyer is interested in buying, it does not suggest a 
higher value, but a lower one.  “[O]ne should have little confidence she can be the special 
one able to outwit the larger universe of equally avid capitalists with an incentive to reap 
rewards by buying the asset if it is too cheaply priced.”145 
The magnitude of a potential Dell deal narrowed the class of prospective buyers 
even further—to the largest PE firms such as KKR, TPG, and Blackstone—though the trial 
court did not cite persuasive evidence in the record that this diminished the relevance of 
the deal price.  In fact, Blackstone proved a formidable check on the fair value of the Silver 
Lake deal given Blackstone’s expenditure of resources on the project and ostensible 
willingness to do a deal if worthwhile.  After submitting an initial proposal and gaining 
Excluded Party status during the go-shop, Blackstone spent nearly a month evaluating the 
Company, involving over 460 of its employees in diligence via the virtual data room and 
in a ballroom in Texas for in-person diligence with Dell employees.  Dell agreed to 
reimburse it for these costs, as it did for Icahn, but Blackstone nonetheless still incurred 
the opportunity cost of channeling time and resources away from other deals, underscoring 
Blackstone’s commitment.  
                                              
144 See DFC, 2017 WL 3261190, at *22 n.154 (“[T]he absence of synergistic buyers for a company 
is itself relevant to its value.”). 
145 Id. at *15. 
 
50 
 
And this was not a buyout led by a controlling stockholder.  Michael Dell only had 
approximately 15% of the equity.146  He pledged his voting power would go to any higher 
bidder, voting in proportion to other shares. 
Other than the Buyout Group, as mentioned, all prospective buyers who reviewed 
the Company’s confidential information retreated for the same reasons that the public 
markets were purportedly undervaluing Dell—trepidation about the future of the PC 
industry and the prospects of Dell’s long-term turnaround strategy.  This consistency 
confirms that management did not intentionally depress the Company’s stock price in order 
to take advantage of a “trough” that public investors failed to recognize.147  In fact, the trial 
court expressly found that, “unlike other situations that this court has confronted, there is 
no evidence that Mr. Dell or his management team sought to create the valuation disconnect 
so that they could take advantage of it,” and “[t]o the contrary, they tried to convince the 
market that the Company was worth more.”148  Prospective buyers just did not believe the 
potential for a turnaround outweighed the risk of further erosion of PC sales and, 
accordingly, the Company’s balance sheet.  This coherence in views also makes it hard to 
                                              
146 M. Dell Testimony, supra note 18, at A610.  
147 Cf. Glassman v. Unocal Expl. Corp., 777 A.2d 242, 248 (Del. 2001) (“[I]f the merger was timed 
to take advantage of a depressed market, or a low point in the company’s cyclical earnings, or to 
precede an anticipated positive development, the appraised value may be adjusted to account for 
those factors.”).  
148 Dell Trial Fair Value, 2016 WL 3186538, at *34.  
 
51 
 
take seriously the notion that Dell investors were incapable of accounting for Dell’s long-
term strategy.  And it reinforces the integrity of both Dell’s stock price and deal price.149      
Overall, the weight of evidence shows that Dell’s deal price has heavy, if not 
overriding, probative value.  The transaction process exemplifies many of the qualities that 
Delaware courts have found favor affording substantial, if not exclusive, weight to deal 
price in the fair value analysis.  Even the Court of Chancery’s own summary remarks 
suggest the deal price deserves weight as the court characterized the sale process as one 
that “easily would sail through if reviewed under enhanced scrutiny” and observed that 
“[t]he Committee and its advisors did many praiseworthy things,” too numerous to catalog 
in its opinion, as the trial court noted.150 Given the objective indicia of the deal price’s 
reliability and our rejection of the notion of a private equity carve out, to the extent that the 
Court of Chancery chose to disregard Dell’s deal price based on the presence of only 
private equity bidders, its reasoning is not grounded in accepted financial principles, and 
this assessment weighs in favor of finding an overall abuse of discretion.  As explained 
below, there are other reasons that lead us to this conclusion. 
                                              
149 See DFC, 2017 WL 3261190, at *20 (rejecting the argument that the market was incapable of 
accounting for regulatory risk and positing instead that such risk was, in fact, baked into the equity 
market price); id. at *21 (“That these other potential buyers dropped out of the sales process after 
receiving confidential information about DFC suggests that these parties were aware of the 
‘trough’ DFC was in at the time and the uncertain future regulatory risk it faced, and ultimately 
did not think a transaction with DFC was worth pursuing.  Indeed, [one of the two possible buyers 
who submitted a non-binding indication of interest] cited the regulatory risk facing the company 
as its reason for not wanting to pursue a transaction with DFC.”).  
150 Dell Trial Fair Value, 2016 WL 3186538, at *29. 
 
52 
 
iii. 
Features of MBOs Which Could Theoretically Undermine 
the Probative Value of the Deal Price Are Not Present Here. 
The Court of Chancery focused on three problems supposedly present in all MBOs 
to show that the deal price here is not evidence of fair value: (a) structural issues; (b) the 
“winner’s curse”; and (c) management’s perceptive value to the company.  Yet none of 
these theoretical characteristics detracts from the reliability of the deal price on the facts 
presented here.  As a result, the trial court’s reliance on these themes to disregard the deal 
price in its fair value analysis was error. 
a. 
The record does not show that structural issues 
inhibited the effectiveness of the go-shop 
Though it is true that “[t]he structure of the go-shop is an obvious factor that affects 
a participant’s pathway to success,” even the petitioners’ expert characterized the structure 
here as “rais[ing] fewer structural barriers than the norm”151 and found no disqualifying 
fault with the design of Dell’s go-shop.  The trial court determined “[t]he main structural 
problem that [petitioners’ expert] identified did not result from the terms of the go-shop in 
the abstract, but rather stemmed from the size and complexity of the Company.”152  But the 
“size and complexity” of Dell is not a characteristic unique to MBO go-shops, but a feature 
inherent to Dell.  And, if size and complexity of a company were enough to render the 
ultimate deal price undeserving of any weight in the fair value analysis, it would deprive 
the deal price of any deference whenever any large and complex company is appraised.   
                                              
151 Id. at *40.  
152 Id. at *42.  
 
53 
 
In any event, Blackstone was well-equipped to overcome the size and complexity 
of Dell to fashion a rival competitive bid during the go-shop, and it expended the resources 
to do so—helping to push the original merger consideration higher.  In fact, three parties 
gained Excluded Party status, demonstrating that claims of a “chilling effect” lack force.153   
Further, the Court of Chancery dismissed Dell’s deal price because, when 
confronting a proposed MBO, possible bidders during go-shops purportedly rarely submit 
topping bids because they have no “realistic pathway to success.”154  Although that may be 
true in some MBOs, here, rival bidders such as Blackstone, TPG, HP, and Icahn did have 
a realistic pathway to succeeding if they desired.  And two non-binding proposals for the 
whole company and one for part of it surfaced.  Of the transactions that featured go-shops 
announced between January 2006 and June 2015, fourteen deals had go-shops that 
produced superior bids (excluding the Dell deal).155  Two were MBOs:156 one resulted in a 
45% premium over the announced offer price,157 and the other yielded a per-share price 
that was 22% higher than the originally announced price.158  Petitioners’ deal process 
expert attempted to distinguish those deals by explaining management was not crucial to 
                                              
153 Cf. id. (“[T]hat does not mean that the magnitude of the task did not have a chilling effect on 
other parties.”). 
154 Id. at *39. 
155 Petitioners’ Deal Process Expert Report, supra note 141, at B1884.  
156 Id. 
157 Id. at B1885.  
158 Id. at B1886.  
 
54 
 
either.159  But, as noted below, there is no evidence that management was critical here given 
both Blackstone’s and Icahn’s doubts about Mr. Dell’s leadership and apparent willingness 
to pursue transactions without his continued involvement. 
b. 
The threat of a “winner’s curse” does not provide a 
valid reason for disregarding the deal price based on 
this record.  
The “winner’s curse” describes a theory that, in outbidding incumbent management 
to “win” a deal, a buyer likely overpays for the company because management would 
presumably have paid more if the company were really worth it.  Recognizing this 
phenomenon, prospective bidders supposedly resist outbidding incumbent management for 
fear they might later discover the information that prevented management from bidding 
even higher in the first place.  But the likelihood of a winner’s curse can be mitigated 
through a due diligence process where buyers have access to all necessary information.  
And, here, Dell allowed Blackstone to undertake “extensive due diligence,” diminishing 
the “information asymmetry” that might otherwise facilitate a winner’s curse. 
Mr. Dell “ultimately spent more time with Blackstone than any of the other 
participants, including Silver Lake,” and the Court of Chancery found that “[t]he record 
provided no reason to harbor any concern about Mr. Dell’s level of cooperation or 
responsiveness,” and “all of the bidders received access to the data they requested.”160  The 
                                              
159 See Dell Trial Fair Value, 2016 WL 3186538, at *36 n.35; Petitioners’ Deal Process Expert 
Report, supra note 141, at B1885-86.    
160 Dell Trial Fair Value, 2016 WL 3186538, at *42. 
 
55 
 
trial court even concluded that “the Committee appears to have addressed the problem of 
information asymmetry and the risk of the winner’s curse as best they could.”161  Yet in 
spite of Dell’s efforts, the court concluded, the threat of a winner’s curse is nonetheless 
“endemic to MBO go-shops” and imposes a “powerful disincentive for any competing 
bidder,” even though Blackstone and Icahn surfaced with non-binding proposals.162  But, 
aside from the theoretical, the Court of Chancery did not point to any bidder who actually 
shied away from exploring an acquisition out of fear of the winner’s curse phenomenon. 
The Court of Chancery’s analysis of the winner’s curse phenomenon also suggests 
that “[s]trategic buyers are less subject to the winner’s curse because they typically possess 
industry-specific expertise and have asset-specific valuations that incorporate 
synergies.”163  Therefore, the “winner’s curse” theory cannot explain the lack of strategic 
buyers—one of the primary faults the court found with the sale process. 
The Court of Chancery also posited that Mr. Dell’s vast knowledge about the 
Company required that any rival bidder “have a strategy for dealing with Mr. Dell’s 
superior knowledge.”164  Blackstone had such a strategy: its diligence team included David 
Johnson, who had recently left Dell as head of acquisitions and strategy.165  Further, as 
discussed below, the record also suggests that Icahn doubted the value of Mr. Dell’s insight.  
                                              
161 Id. at *43. 
162 Id. 
163 Id. at *42. 
164 Id. 
165 See id. at *13 (“Blackstone had a sophisticated technology group and one of its partners, David 
Johnson, had recently worked as the Company’s head of acquisitions.”); Mandl Testimony, supra 
 
56 
 
Thus, while the notion of a “winner’s curse” might deter rival bids in some MBOs, 
the record in this case does not provide a basis for suspecting that it did so here—especially 
given the theory is rebutted directly in the record by two proposals from financial sponsors 
during the go-shop.166  The 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.  If a deal price is at a level where the next upward move by a topping bidder 
has a material risk of being a self-destructive curse, that suggests the price is already at a 
level that is fair.  The issue in an appraisal is not whether a negotiator has extracted the 
highest possible bid.  Rather, the key inquiry is whether the dissenters got fair value and 
were not exploited. 
c. 
Management’s Inherent Value to the Company 
The Court of Chancery also presumed that “Mr. Dell’s value to the Company” 
imposed another impediment to the likelihood of rival bidders succeeding and thus 
dissuaded them from even trying.167  But, again, the Court of Chancery’s own fact findings 
contradict and do not rationally support this conclusion. 
                                              
note 34, at A333-34; Hiltz Testimony, supra note 37, at A521; Petitioners’ Deal Process Expert 
Report, supra note 141, at B1893-94. 
166 The record also suggests that Mr. Dell believed private equity firms were just as capable of 
assessing Dell’s prospects.  After both KKR and TPG passed on continuing to pursue the Company 
during the pre-signing phase, Mr. Dell recalled, “I was disappointed.  I was starting to think that 
maybe we were missing something.” M. Dell Testimony, supra note 18, at A596 (emphasis added).   
167 Dell Trial Fair Value, 2016 WL 3186538, at *43. 
 
57 
 
First, the trial court supports its assessment that “the Company’s relationship with 
Mr. Dell was an asset in itself” through event studies showing that Dell’s stock dropped 
when he left in 2004 and jumped upon his return in 2007.168  But it does not explain why 
it could trust the market’s ability to assess the value of Mr. Dell’s leadership but not its 
ability to serve as a reliable indicator of the value of Dell’s stock.  Further, assuming 
arguendo that market data from 2007 demonstrated Mr. Dell’s value to the Company in 
2007, it does not follow that such evidence showed his value six years later, in 2013, at the 
time of the Merger—after Dell’s stock had languished for several years and investors 
questioned Mr. Dell’s strategy for transforming the Company (another finding of the trial 
court).  Stale event studies and a single, self-serving e-mail from Mr. Dell suggesting that 
a potential customer might not engage the Company if he were replaced do not amount to 
sufficient evidence of Mr. Dell’s actual value.169  The Court of Chancery’s view of this 
issue is also in tension with its myopia theory.  If Mr. Dell was as valued by market players 
and as trusted by the stock market as this aspect of the Court of Chancery’s decision 
implies, then the decision’s failure to give any weight to the stock market’s reaction to Mr. 
Dell’s lengthy efforts to convince it of the bright future that the transformation plan 
augured for Dell stockholders is difficult to understand. 
                                              
168 Id. at *44 (citing event studies showing the Company lost $1.2 billion in market value upon 
Mr. Dell’s departure from the Company in March 2004 and gained $2.5 billion in market value 
upon his return in January 2007).  
169 Id. at *43 n.42. 
 
58 
 
The Court of Chancery also acknowledged “evidence that Blackstone and Icahn did 
not regard Mr. Dell as essential to their bids.”170  Blackstone had investigated possible 
replacements as CEO.171  And Icahn advised stockholders that he believed “the company 
would be worth far, far more” without Mr. Dell at the helm.172   
 
And, even if one could accept the trial court’s view that Mr. Dell’s service as CEO 
added per-share value to the Company’s stock, the record does not suggest that he would 
have stopped serving the Company if Blackstone, TPG, or another reputable buyer had 
prevailed.  He was contractually obligated to explore “any such potential counterparty or 
financing source if requested by the Committee,” though he had “discretion” as to whether 
to continue after such exploration.173  Significantly, based on Mr. Dell’s good faith during 
the go-shop and “credibl[e]” testimony at trial, the Court of Chancery concluded that “the 
record indicated that Mr. Dell actually was willing to work with other buyout groups.”174 
 
Thus, it is difficult to discern how “Mr. Dell’s unique value and his affiliation with 
the Buyout Group were negative factors that inhibited the effectiveness of the go-shop 
process.”175  The Court of Chancery even acknowledged that “[e]xceptional bidders like 
                                              
170 Id. at *44. 
171 Id. at *43 n.42. 
172 Id. at *44.  Icahn also advised stockholders that he considered Mr. Dell “a major liability” to 
the Company.  Id. at *44 n.44. 
173 Id. at *5, *44.  Given Mr. Dell’s testimony and actions, the Court of Chancery suggested, “[i]n 
a different case in which a key employee was less forthcoming, a comparable commitment might 
not be as persuasive.”  Id. at *44. 
174 Id. 
175 Id. 
 
59 
 
Blackstone and Icahn could overcome” such barriers,176 and the court did not identify any 
possible bidders that were actually deterred because of Mr. Dell’s status. 
C. 
Market Data Conclusion 
The actual facts concerning Dell’s market values—the particularities of its stock 
market and the sale process—demonstrate that the Court of Chancery’s reasons for 
assigning no weight to the market values are flawed.  The apparent efficiency of Dell’s 
pre-signing stock market and the long-term approach of its analysts undermine concerns of 
a “valuation gap.”  Competition limited to private equity bidders does not foreclose the sale 
price reflecting fair value, especially where the special committee instituted and oversaw a 
robust post-signing go-shop process.  And, though the Court of Chancery’s theories about 
MBOs might hold up as applied to other facts, they are not supported by the facts here.  
This was a case where the supposed prerequisite elements for problematic MBOs did not 
exist: rival bidders faced minimal structural barriers to a deal; extensive due diligence and 
cooperation from the Company helped address any information asymmetries that might 
otherwise imply the possibility of a winner’s curse; and, assuming his value, Mr. Dell 
would have participated with rival bidders.   
Taken as a whole, the market-based indicators of value—both Dell’s stock price and 
deal price—have substantial probative value.  But here, after examining the sale process, 
the Court of Chancery summarized that, “[t]aken as a whole, the Company did not establish 
that the outcome of the sale process offers the most reliable evidence of the Company’s 
                                              
176 Id. 
 
60 
 
value as a going concern.”177  These two statements are not incongruous, and the Court of 
Chancery’s statement is not a rational reason for assigning no weight to market data.  There 
is no requirement that a company prove that the sale process is the most reliable evidence 
of its going concern value in order for the resulting deal price to be granted any weight.  If, 
as here, the reasoning behind the decision to assign no weight to market data is flawed, 
then the ultimate conclusion necessarily crumbles as well—especially in light of the less-
than-surefire DCF analyses—as demonstrated below.   
In so holding, we are not saying that the market is always the best indicator of value, 
or that it should always be granted some weight.  We only note that, when the 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 is so compelling, 
then failure to give the resulting price heavy weight because the trial judge believes there 
was mispricing missed by all the Dell stockholders, analysts, and potential buyers abuses 
even the wide discretion afforded the Court of Chancery in these difficult cases.  And, of 
course, to give no weight to the prices resulting from the actions of Dell’s stockholders and 
potential buyers presupposes that there is a more plausible basis for determining Dell’s 
value in the form of expert testimony, such as from the petitioners’ expert, who argued that 
his DCF analysis showed the fair value of Dell’s stock is $28.61 per share178—almost three 
                                              
177 Id. (emphasis added).  
178 Id. at *45. 
 
61 
 
times higher than the unaffected stock price of $9.97 per share179  and more than two times 
higher than the deal price of $13.75 per share.   
D. 
The Discounted Cash Flow Analyses 
We pause to note that this appraisal case does not present the classic scenario in 
which there is reason to suspect that market forces cannot be relied upon to ensure fair 
treatment of the minority.  Under those circumstances, a DCF analysis can provide the 
court with a helpful data point about the price a sale process would have produced had 
there been a robust sale process involving willing buyers with thorough information and 
the time to make a bid.  When, by contrast, an appraisal is brought in cases like this where 
a robust sale process of that kind in fact occurred, the Court of Chancery should be chary 
about imposing the hazards that always come when a law-trained judge is forced to make 
a point estimate of fair value based on widely divergent partisan expert testimony. 
As is common in appraisal proceedings,180 each party—petitioners and the 
Company—enlisted highly paid, well-credentialed experts to produce DCF valuations.181  
                                              
179 See id. at *17; see also id. (noting that the deal price reflected an “approximately 37% premium 
over the ninety-day-average unaffected trading price of $9.97”).   
180 See, e.g., DFC, 2017 WL 3261190, at *31 (describing “briefs and expert reports written by 
highly-skilled litigators in concert with men and women of valuation science that often come to 
ridiculously varying positions”).   
181 Folk, supra note 129, § 262.10, at 9-235 to 9-236 (describing the DCF methodology as “based 
on the premise that the value of a company is equal to the present value of its projected future cash 
flows.”); Jesse A. Finkelstein & John D. Hendershot, Appraisal Rights in Mergers and 
Consolidations, 38-5th C.P.S. § V, at A-37 to A-38 (BNA) (noting that the “DCF methodology 
rests on three basic components: (i) projections of operating cash flows, (ii) terminal value, and 
(iii) the discount rate”—but that the outcomes using this “basic structure” can vary greatly 
depending on the assumptions and methods employed).  
 
62 
 
But their valuations landed galaxies apart—diverging by approximately $28 billion, or 
126%.182  Petitioners’ expert arrived at a per-share valuation of $28.61 as of the merger 
date, and the Company’s expert produced a valuation of $12.68 per share.  The Court of 
Chancery recognized that “[t]his is a recurring problem,”183 and even believed the “market 
data is sufficient to exclude the possibility, advocated by the petitioners’ expert, that the 
Merger undervalued the Company by $23 billion.”184  Thus, the trial court found 
petitioners’ valuation lacks credibility on its face.  We agree.  Yet, the trial court believed 
it could reconcile these enormous valuation chasms caused by the over 1,100 variable 
inputs in the competing DCFs and construct a DCF that more appropriately reflected the 
fair value of Dell’s stock than the market data.185  And, reconciling the various agreements 
and divergences among the experts, the trial court determined fair value to be $17.62.   
To underscore our concern with the Court of Chancery’s decision to give no weight 
to Dell’s stock market price or the deal price and, instead, arrive at a value nearly $7 billion 
above the transaction price, we consider the trial court’s concluding explanation for its 
reasoning: 
                                              
182 Dell Trial Fair Value, 2016 WL 3186538, at *45. 
183 Id. 
184 Id. at *44.  We calculate the differential to be $26 billion, not $23 billion. 
185 But see In re SWS Group, Inc., 2017 WL 2334852, at *11 (Del. Ch. May 30, 2017) (observing 
that a DCF calculation is “only as reliable as the inputs relied upon and the assumptions underlying 
those inputs”); Huff Fund Inv. P’ship v. CKx, Inc., 2013 WL 5878807, at *1 (Del. Ch. Nov. 1, 
2013) (“[T]he unpredictable nature of the income stream from the company’s primary asset renders 
the apparent precision of the expert witnesses’ cash flow valuation illusory”), adhered to, 2014 
WL 2042797 (Del. Ch. May 19, 2014), judgment entered sub nom., Huff Fund Inv. P’ship v. CKX, 
Inc. (Del. Ch. June 17, 2014). 
 
63 
 
The fair value generated by the DCF methodology comports with the 
evidence regarding the outcome of the sale process.  The sale process 
functioned imperfectly as a price discovery tool, both during the pre-signing 
and post-signing phases.  Its structure and result are sufficiently credible to 
exclude an outlier valuation for the Company like the one the petitioners 
advanced, but sufficient pricing anomalies and disincentives to bid existed to 
create the possibility that the sale process permitted an undervaluation of 
several dollars per share.  Financial sponsors using an LBO model could not 
have bid close to $18 per share because of their IRR requirements and the 
Company’s inability to support the necessary levels of leverage.  Assuming 
the $17.62 figure is right, then a strategic acquirer that perceived the 
Company’s value could have gotten the Company for what was 
approximately a 25% discount.  [But g]iven the massive integration risk 
inherent in such a deal, it is not entirely surprising that HP did not engage 
and that no one else came forward.  Had the valuation gap approached what 
the petitioners’ expert believed, then the incentives to intervene would have 
been vastly greater. 
 
Because it is impossible to quantify the exact degree of the sale process 
mispricing, this decision does not give weight to the Final Merger 
Consideration.  It uses the DCF methodology exclusively to derive a fair 
value of the Company.186 
What this statement means is that the Court of Chancery’s DCF value was the antithesis of 
any economist’s definition of fair market value.  The Court of Chancery conceded that its 
DCF value did not reflect a value deemed attractive to the buyers of Dell’s 1,765,369,276 
publicly traded shares.  Further, it 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 trial court also picked a price higher than any strategic 
would pay because, in economic terms, no strategic believed it could exploit a purported 
$6.8 billion value gap because the risks and costs of acquiring Dell and integrating it into 
                                              
186 Dell Trial Fair Value, 2016 WL 3186538, at *51. 
 
64 
 
its company dwarfed any potential for profit and synergy gains if Dell were purchased at 
the Court of Chancery’s determination of fair value.187  And, of course, as to all buyers, 
strategic and financial, the Court of Chancery found that a topping bid put them at hazard 
of overpaying and succumbing to a winner’s curse. 
When 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.  This is especially so here, where the 
Company worked hard to tell its story over a long time and was the opposite of a 
standoffish, defensively entrenched target as it approached the sale process free of many 
deal-protection devices that may prevent selling companies from attracting the highest bid.  
Dell was a willing seller, ready to pay for credible buyers to do due diligence, and had a 
CEO and founder who offered his voting power freely to any topping bidder. 
Given that we have concluded that the trial court’s key reasons for disregarding the 
market data were erroneous, and given the obvious lack of credibility of the petitioners’ 
DCF model—as well as legitimate questions about the reliability of the projections upon 
which all of the various DCF analyses are based—these factors suggest strong reliance 
upon the deal price and far less weight, if any, on the DCF analyses.  
In addition to the relatively sound economic reasons, there are also important policy 
reasons supporting this result.  If the reward for adopting many mechanisms designed to 
                                              
187 The trial court did not cite any evidence for the “massive integration risk” that it believed to 
exist, and we find none in the record.  See id.  
 
65 
 
minimize conflict and ensure stockholders obtain the highest possible value is to risk the 
court adding a premium to the deal price based on a DCF analysis, then the incentives to 
adopt best practices will be greatly reduced.  Although widely considered the best tool for 
valuing companies when there is no credible market information and no market check, 
DCF valuations involve many inputs—all subject to disagreement by well-compensated 
and highly credentialed experts—and even slight differences in these inputs can produce 
large valuation gaps.  Here, management’s projections alone involved more than 1,100 
inputs, and the experts’ fair value determinations (which also included several novel tax 
issues discussed below) landed on different planets.  Rather than gambling on an 
appraisal’s battle of the experts, transactional planners might instead propose alternative 
routes (such as squeeze-outs) to CEOs and founders that will be less attractive for 
diversified investors in public companies and will likely result in going-private transactions 
occurring at a lower, not higher, value.   
Despite our sentiments, to aid the Court of Chancery if it justifies granting any 
weight to the DCF on remand, we address the specific issues raised by the parties in their 
appeals and cross-appeals. 
i. 
Tax Issues 
We note at the outset that the Company challenges the Court of Chancery’s 
treatment of somewhat novel tax issues.  These issues involve highly fact-specific, 
subjective determinations—the outcomes of which can cause wide differences in the 
 
66 
 
ultimate DCF valuation.188  The parties have focused proportionately little attention on 
these issues before this Court, adding to our inclination to defer to the trial court, or remand 
for further consideration, where the record before us is not sufficiently developed on these 
complex, technical issues. 
a. Terminal Period Tax Rate  
Dell argues that the Court of Chancery abused its discretion in using Dell’s 21% 
effective tax rate, rather than the top marginal tax rate under U.S. law (and an addition for 
state taxes) in its model’s terminal period.  But this effective tax rate reflected the 
Company’s operative reality as of the merger date, and the evidence supports the Court of 
Chancery’s decision that this operative reality was likely to continue.  There is precedent 
favoring adopting tax rates consistent with the operative reality of the company under 
consideration.189  The 21% tax rate is just that—in line with Dell’s history and apparently 
consistent with its tax-paying future.  For example, Dell paid effective tax rates ranging 
from 16.5% to 29.2% in the five years before the Merger190—including an average of 
18.5% in the three years preceding the Merger191—so 21%, the tax rate selected by 
                                              
188 For example, in its opening brief, the Company aggregates the three asserted “tax errors” as 
follows: FIN 48 ($1.34 billion), repatriation tax error ($1.28 billion), and marginal tax rate error 
($1.71 billion), totaling, potentially, $4.33 billion.  Appellant’s Opening Br. at 52.  The Company 
claims that the aggregate impact of these alleged errors lowers the court’s $17.62 per share 
valuation to $13.29 per share.  Id. 
189 See, e.g., Global GT, 993 A.2d at 514; Dell Trial Fair Value, 2016 WL 3186538, at *48 n.49 
(collecting cases). 
190 Id. at *48.  
191 See Pretrial Stipulation & Order, entered Sept. 30, 2015, at A95 ¶¶ 290-92.  
 
67 
 
management, is right in the ballpark.  JPMorgan and Evercore also used a tax rate of 21% 
in the terminal periods of their own DCF calculations.192 
In contrast, in advocating that we apply the marginal tax rate of 35% plus 0.8% for 
state taxes to all Dell’s earnings in the terminal period, the Company urges us to adopt a 
tax rate that Dell never paid and has no plans of paying.  Given the ample reasons to apply 
the 21% effective tax rate to the terminal period, the Court of Chancery did not abuse its 
discretion. 
b. Deferred Taxes  
We find that the Court of Chancery erred in its conclusion that the effective tax rate 
accounted for the inevitable taxes that the Company would have to pay upon repatriating 
its foreign earnings and profits and, thus, remand for further consideration of what 
repatriation deduction is necessary. 
Cash flows need to be available to stockholders in order to add value as part of a 
company’s going concern.  And, to be available to stockholders, the cash needs to be in the 
United States.  Further, in order to be in the United States, foreign earnings and profits 
must be subjected to taxation when they return to the country, i.e., upon repatriation. 
The trial court’s free cash flow projections in its DCF valuation include all earnings, 
both domestic and foreign.  The Court of Chancery’s model also applied the same effective 
                                              
192 E.g., JPMorgan Project Denali - Model Outputs Presentation (Jan. 15, 2013), at B504, B507; 
Evercore Partners Discounted Cash Flow Model (Feb. 6, 2013), at B590; Evercore Partners 
Discounted Cash Flow Model (Aug. 1, 2013), at B782; JPMorgan Project Denali Model 
Presentation (Aug. 14, 2013), at A2612, A2614. 
 
68 
 
tax rate to all of those cash flows because, indeed, the effective tax rate is the aggregate tax 
rate covering both domestic and foreign earnings: it is lower than the statutory marginal 
tax rate to account for the lower tax rates applied to income earned abroad, adjusted against 
the proportion of income coming from each of the respective foreign jurisdictions.193 
But the Court of Chancery’s analysis cannot end there.  Though the effective tax 
rate accounts for the disparate tax treatment of Dell’s income in various jurisdictions, 
including various tax holidays, it does not account for the tax consequence upon 
repatriation,194 as the Court of Chancery believed.195  Thus, to cure the existing asymmetry 
in the Court of Chancery’s model, i.e., the model’s inclusion of foreign earnings and profits 
in cash flow without any corresponding tax consequences upon repatriation, the Company 
                                              
193 See Form 10-K 2013, supra note 9, at A2013 (“Our effective tax rate can fluctuate depending 
on the geographic distribution of our world-wide earnings, as our foreign earnings are generally 
taxed at lower rates than in the U.S.  In certain jurisdictions, our tax rate is significantly less than 
the applicable statutory rate as a result of tax holidays . . . . The differences between our effective 
tax rate and the U.S. federal statutory rate of 35% principally resulted from the geographical 
distribution of taxable income discussed above and permanent differences between the book and 
tax treatment of certain items.”); id. at A1986 (“[A]ny actions by [the Company] to repatriate non-
U.S. earnings for which we have not previously provided for U.S. taxes may impact our effective 
tax rate.”). 
194 Id. at A2016 (“We have provided for the U.S. federal tax liability on these amounts [i.e., foreign 
income] for financial statement purposes, except for foreign earnings that are considered 
permanently reinvested outside of the U.S.”) (emphasis added).  
195 See Dell Trial Fair Value, 2016 WL 3186538, at *50 (“The Company’s CFO testified that the 
effective tax rate includes deferred taxes, and that the Company’s cash tax rate is lower than the 
effective rate because the effective tax rate includes substantial deferred tax liabilities. In other 
words, the effective tax rate accounts for the deferred taxes . . . .”).  However, Dell’s CFO only 
testified that the Company’s effective rate has been lower than the marginal rate of 35% because 
“income that’s earned in foreign jurisdictions, meaning outside the U.S., is taxed at a lower tax 
rate.”  Transcript of Thomas Sweet Trial Testimony (Oct. 5, 2015), at A437 [hereinafter Sweet 
Testimony]; see also supra notes 193 and 194. 
 
69 
 
is right that the model needs to account for the additional, previously-unaccounted-for tax 
consequence of repatriation.   
However, the Company’s proposed $2.24 billion deduction appears excessive as it 
assumes tax rates of over 30% upon repatriation.196  Dell’s operative reality shows that the 
Company has never paid close to that rate when repatriating foreign earnings and profit197 
and had no plans to repatriate vast amounts of money in the foreseeable future.198   In fact, 
in the past twenty years, Dell only repatriated “significant” amounts of such earnings 
during repatriation tax holidays199 and never paid more than 5.25% on such earnings and 
profit.200  Thus, contrary to the Company’s proposal, it seems consistent with its operative 
reality to assume that Dell would only repatriate such earnings and profit when it would be 
subject to as little tax as possible, signaling that the Company’s proposed $2.24 billion 
deduction is too big.   
We remand this issue for further consideration given that the effective tax rate does 
not account for the future cost of repatriating Dell’s foreign earnings.  On remand, if the 
Court of Chancery decides to rely upon a DCF as part of its award, it has the discretion to 
                                              
196 See Corrected Expert Report of Stephen Shay (Aug. 26, 2015), at A4343; Stephen Shay Trial 
Demonstrative No. 5 at A4372.  
197 Dell never paid the full marginal tax rate when repatriating, see Transcript of Stephen Shay 
Trial Testimony (Oct. 7, 2015), at A1133 [hereinafter Shay Testimony], but the Company’s 
proposed deferred tax deduction used in its DCF model assumes that its repatriation taxes will be 
paid at the full marginal rate. 
198 Form 10-K 2013, supra note 9, at A2063 (noting that Dell intended to reinvest foreign earnings 
abroad “indefinitely”). 
199 Dell Trial Fair Value, 2016 WL 3186538, at *48.  Dell repatriated $4 billion during a 2004 tax 
holiday and $9 billion during a 2013 tax holiday.  Id. 
200 Expert Report of John P. Steines, Jr. (July 24, 2015), at B2377-78.  
 
70 
 
seek additional input from the parties, and from a court-appointed expert, to resolve this 
issue.  We do not dictate any outcome other than that the court’s treatment of Dell’s foreign 
earnings must include its corresponding tax consequences.  That is, if the Court of 
Chancery chooses to include foreign earnings in its analysis, it should adjust its model to 
include some rational tax consequence upon repatriation.  Otherwise, the court should 
exclude those earnings, consistent with its own assumption that they will be reinvested 
abroad indefinitely and thus never available to pay the Company’s stockholders. 
c. FIN 48 
Dell’s final tax argument on appeal is that the Court of Chancery abused its 
discretion by reducing its calculation by only $650 million instead of $3.01 billion to 
account for possible tax liability that the Company could face if tax authorities ultimately 
disagree with its positions on certain tax issues. 
This is a complicated issue for many reasons, not the least of which is the absence 
of guidance in respected valuation treatises as to how to account for a so-called FIN 48 
reserve when conducting a DCF valuation.  FIN 48 is the Financial Accounting Standards 
Board interpretive statement that requires companies to create a reserve to account for tax 
benefits that are too uncertain to be recognized in a company’s financial statements.201 
Applying this guidance, Dell created a $3.01 billion FIN 48 reserve based on its 
view that it was more likely than not that $3.01 billion would be due if Dell’s positions on 
certain tax issues were contested.  But, in its DCF valuation, the Court of Chancery only 
                                              
201 Fin. Acct. Standards Bd., FASB Interpretation No. 48: Accounting for Uncertainty in Income 
(2006) (codified at FASB Accounting Standards Codification 740-10-55-3) [hereinafter FIN 48]. 
 
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subtracted $650 million from its enterprise value, not the full $3.01 billion.  On appeal, 
Dell argues that this was error because the Court of Chancery misunderstood the FIN 48 
standard and therefore failed to include the full reserve amount. 
Dell is correct as to one part of its argument.  In its decision, the trial court collapsed 
the two-step process for creating this reserve by stating that the FIN 48 reserve “measures 
the tax payment a company expects to pay if a taxing authority disagrees with its position 
even though it thinks it is more likely than not that its position is correct.”202  In fact, as the 
first step in creating the FIN 48 reserve, a company recognizes “the financial statement 
effects of a tax position when it is more likely than not, based on the technical merits, that 
the position will be sustained upon examination.”203  Then, as the second step, a company 
must maintain as a liability on its balance sheet “unrecognized tax benefits, which are the 
differences between a tax position taken or expected to be taken in a tax return and the 
benefit recognized . . . .”204 
But the problem for Dell is that the error of the Court of Chancery does not translate 
directly into reversible error for an important reason.  There is no agreement in the record 
that all of a FIN 48 reserve should be deducted when conducting a DCF analysis, and Dell 
has not cited corporate finance literature supporting its argument that the entirety of a FIN 
48 reserve must be deducted.  To be fair, Dell has cited corporate finance literature saying 
                                              
202 Dell Trial Fair Value, 2016 WL 3186538, at *50. 
203 FIN 48, supra note 201, ¶ 6. 
204 Id. ¶ 17 (emphasis added). 
 
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that the potential for tax liability has to be considered in calculating enterprise value.205  
But, assuming that is right, Dell did not present a persuasive way of doing so when, as 
under FIN 48, the reserve is dealing with probabilities and, therefore, there is a need to 
decide on the amount of the reserve to be deducted.  In fact, Dell’s own expert testified that 
the question of how to treat FIN 48 reserves was not a common one and that he was 
unaware of any appraisal treatise that directs appraisers to deduct all of a FIN 48 reserve 
when calculating enterprise value.206  By definition, a reserve based on a more likely than 
not standard has a fairly large degree of uncertainty.  And, there was factual testimony here 
that provided a factual basis for the Court of Chancery’s determination to deduct only $650 
million. 
In his trial testimony, Dell’s CFO spoke directly to the likelihood that Dell would 
face liability on the reserved amounts.  That testimony indicated that, between 2013 and 
2018, $650 million was the amount of Dell’s FIN 48 reserve that was most likely to come 
                                              
205 See Appellant’s Opening Br. at 44 n.21 (stating that “there ‘may be other claims on the firm 
that do not show up in debt that you should subtract from firm value’ and specifically calling out 
contingent liabilities” (quoting Asworth Damodaran, Investment Valuation 441 (3d ed. 2012))); 
see also Appellant’s Reply Br. 26 (citing Shannon Pratt & Roger Grabowski, Cost of Capital: 
Applications and Examples 542 (5th ed. 2014) [hereinafter Cost of Capital] (“Liabilities for either 
current or prior period issues, such as potential judgments or settlements for ongoing litigation, 
proposed or potential adjustments to prior income taxes and environmental cleanup costs, are real 
liabilities that should be subtracted from the overall business valuation as of the valuation date but 
are not considered part of the ongoing capital structure of the entity.”)) (emphasis added). 
206 Transcript of Glenn Hubbard Trial Testimony (Oct. 7, 2015), at A874-76; see also Cost of 
Capital, supra note 205, at 542 [hereinafter Hubbard Testimony] (“Valuation of contingent 
liabilities requires consideration of the probabilities of payment and the possible timing.  The 
possible outcomes must be converted to an estimate of the present value of the expected amount 
of the ultimate payment and whether it will be deductible for income tax royalties resulting from 
the liability.”).  
 
73 
 
due.207  Given that there is uncertainty in the valuation literature and the record about the 
extent to which a FIN 48 reserve should be deducted from enterprise value, we cannot find 
that the Court of Chancery’s decision to deduct only the $650 million that was most likely 
to come due in the near future was an abuse of discretion.  
Not only that, but there is evidence in the record that the Company’s calculation of 
its effective tax rate took into account the FIN 48 reserve.208  Thus, by deducting the portion 
of the FIN 48 reserve that the record evidence showed was most likely to come due, and 
adopting an effective tax rate based in part on consideration of the issues addressed by the 
reserves, the Court of Chancery’s decision was grounded in the record. 
We are reluctant to speak broadly about this issue because the record below and 
before us is devoid of reliable guidance about how FIN 48 reserves should be treated in the 
                                              
207 Sweet Testimony, supra note 195, at A470–71. 
208 See, e.g., Sweet Testimony, supra note 195, at A480-81; Shay Testimony, supra note 197, at 
A1148-49, 1152-56, A1153-55; see also Form 10-K 2013, supra note 9, at A2064. 
PETITIONERS’ COUNSEL: So all of the years building up to your big 3 billion 
[FIN 48 Reserve] in 2013 was all in Dell’s effective tax rate.  Right? . . .  
SHAY: [T]he answer is yes for the years that you’re describing . . . . [B]ecause I 
referred to the two years, 2012 and 2013, to derive the effective tax rate that I 
recommended or opined to Mr. Hubbard that he use for the projection and transition 
period, yes, the FIN 48 amount is in that effective rate that’s applied to the earnings 
that are used in those cash flows.  
Shay Testimony, supra note 197, at A1153-55.  Petitioners’ expert did not include a separate 
deduction for the FIN 48 reserve: he assumed Dell would have accounted for the FIN 48 reserve 
when calculating the effective tax rate of 21%, which he applied to all cash flows.  See Transcript 
of Bradford Cornell Trial Testimony (Oct. 5, 2015), at A277, A281-82; Dell Trial Fair Value, 
2016 WL 3186538, at *48.  The appellees do not argue on cross-appeal that it was error for the 
Court of Chancery to exclude the $650 million of the FIN 48 reserve that Dell’s CFO testified was 
most likely to be owed during the projection period. 
 
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calculation of a DCF.  The unreliability of the record and our duty to respect the difficult 
task of trial judges in these cases leaves us unprepared to disturb the Court of Chancery’s 
ultimate finding on this issue, despite its misstatement of the FIN 48 standard. 
ii. 
Cross-Appeals 
Petitioners cross-appealed alleging that, to the extent the Court of Chancery erred in 
formulating its DCF, it did so by adopting the revisions that Dell’s expert applied to the 
BCG 25% Case projections and including deductions for working capital and restricted 
cash.  We find that these choices do not amount to an abuse of discretion.209  
a. 
Projection Adjustments 
The Court of Chancery did not abuse its discretion in adjusting the BCG 25% Case 
projections, which it factored into one of the two DCF calculations that it later averaged to 
arrive at its final determination of fair value.  Though petitioners argue that the BCG 25% 
Case underestimated cost savings,210 both experts agreed that it was largely reliable.211  
                                              
209 BCG’s projections included three different cases.  The “BCG Base Case” was more pessimistic 
than management’s “September Case.”  The two other cases assessed the likelihood of achieving 
cost-saving initiatives.  One assumed that Dell would realize 25% of management’s intended cost 
savings (the “BCG 25% Case”), and the other assumed that the Company would realize 75% of 
the savings (the “BCG 75% Case”).  Dell Trial Fair Value, 2016 WL 3186538, at *10.   
210 See Appellees’ Ans. Br. at 62 (arguing that the Court of Chancery erred by adopting “a set of 
projections that assumed Dell would take out less in costs over a three-year period than it had 
already taken out by the end of FY 2014.”). 
211 Dell Trial Fair Value, 2016 WL 3186538, at *45.  
 
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Petitioners’ attorney also conceded at oral argument that “[e]veryone agrees that th[e] BCG 
25% Case] is the best set of projections.”212 
Petitioners also question the decision of Dell’s expert, Hubbard, to update the 
projections to reflect the latest pre-Merger IDC report (August 2013) that suggested PC 
sales would continue to decline even further than anticipated industry-wide.  Given that 
BCG had previously adjusted its projections to account for new IDC forecasts,213 it would 
seem to make sense that the projections as of the date of the Merger would need to include 
the most recent figures. 
But petitioners argue that the projections’ creator, Lutao Ning of BCG, testified at 
trial that one could not simply swap out old IDC data for new figures214 and that, regardless, 
the IDC numbers only corroborated the accuracy of BCG’s projections because the 
projections forecasted such declines.215  We defer to the Court of Chancery’s assessment 
of this testimony and its decision to adjust for the latest IDC report, especially since the 
trial court attempted to balance the “likely somewhat conservative” Adjusted BCG 25% 
Case against the “likely somewhat optimistic” adjusted Bank Case projections in the 
                                              
212 Oral Argument before the Delaware Supreme Court at 42:11, https://livestream.com/accounts/
5969852/events/7748349/videos/163426742. 
213 After initially providing its projections to the Special Committee on January 2, 2013, BCG 
“updated its projections slightly to account for new information from the bankers and a new IDC 
data set.”  Dell Trial Fair Value, 2016 WL 3186538, at *10.  BCG did not update its projections 
after January 2013.  Id. at *45. 
214 Transcript of Lutao Ning Trial Testimony (Oct. 6, 2015), at A676-77. 
215 Id. at A681-83.  
 
76 
 
court’s final fair value determination.216  It averaged two DCF valuations using all the same 
inputs other than these two sets of projections in arriving at its final fair value figure.  This 
choice, which is unchallenged, was designed to minimize any over-pessimism in tweaking 
the IDC numbers.  The Court of Chancery had logic for its adjustment to the projections, 
and this adjustment did not amount to an abuse of discretion.  
b. Cash 
Petitioners also challenge the Court of Chancery’s deductions of $3 billion for 
working capital and $1.2 billion for restricted cash from Dell’s enterprise value.  Neither 
of these judgment calls amounts to an abuse of discretion. 
Dell’s CFO testified that the Company needed at least $5 billion in working 
capital217 to support its operations (including $2 billion restricted cash),218 and 
documentary evidence corroborates this view.219  It was reasonable for the Court of 
Chancery to believe this evidence supported the working capital deduction.  Dell’s CFO 
testified that the Company needed cash on hand to accommodate “seasonality” and 
                                              
216 See Dell Trial Fair Value, 2016 WL 3186538, at *47, *51 (noting that the court had “no reason 
to prefer one realistic case over the other”).  
217 “Working capital is derived by subtracting current liabilities from current assets and represents 
the capital the business has at its disposal to fund operations.”  Merion Capital, L.P. v. 3M Cogent, 
Inc., 2013 WL 3793896, at *13 (Del. Ch. July 8, 2013), judgment entered sub nom. Merion 
Capital, L.P v. 3M Cogent, Inc. (Del. Ch. July 23, 2013) (quoting Gholl v. Emachines, Inc., 2004 
WL 2847865, at *14 n.97 (Del. Ch. Nov. 24, 2004)). 
218 Sweet Testimony, supra note 195, at A431-33.  
219 Working Capital Update (Jan. 2013), at AR3; Denali Acquiror Inc. Rating Agency Presentation 
(Aug. 2013), at AR48; LBO Project Update - Treasury Ops (Sept. 3, 2013), at AR85; Silver Lake, 
“Project Denali Illustrative LBO & Operating Model” Presentation (Sept. 17, 2013), at AR99.  
 
77 
 
“geographical friction,”220 and the Court of Chancery did not abuse its discretion in 
crediting this testimony. 
The Court of Chancery also did not abuse its discretion in deducting $1.2 billion of 
the $2 billion deduction for restricted cash advocated by the Company.221  The trial court 
did not deduct $0.8 billion of that total because evidence showed it had become unrestricted 
before the Merger and thus could no longer be counted among the restricted pool.222  There 
was some evidence at the time of the Merger that some Chinese regulations that restricted 
much of the cash were changing so as to allow Dell to access it and thus also eliminate the 
need for a portion of the remaining $1.2 billion deduction.223  But the record does not 
specify how much capital was likely to become unrestricted.  Thus, we defer to the Court 
of Chancery’s judgment in declining to shrink the deduction even further in light of the 
sparse record on restricted cash. 
III. 
Fair Value Conclusion 
Despite the sound economic and policy reasons supporting the use of the deal price 
as the fair value award on remand, we will not give in to the temptation to dictate that 
result.  That said, we give the Vice Chancellor the discretion on remand to enter judgment 
at the deal price if he so chooses, with no further proceedings.  If he decides to follow 
                                              
220 Sweet Testimony, supra note 195, at A432-33.  
221 Id. at A431, A433.  
222 Dell Trial Fair Value, 2016 WL 3186538, at *50.  Dell’s expert admitted at trial that the 
restricted cash deduction would be unnecessary if Dell could ever access the money.  See Hubbard 
Testimony, supra note 206, at A867-70.  Dell’s expert explained, “If you could bring it back 
costlessly today, you shouldn’t be subtracting it.”  Id. at A869.   
223 Sweet Testimony, supra note 195, at A433-34.  
 
78 
 
another route, the outcome should adhere to our rulings in this opinion, including our 
findings with regard to the DCF valuation.  If he chooses to weigh a variety of factors in 
arriving at fair value, he must explain that weighting based on reasoning that is consistent 
with the record and with relevant, accepted financial principles. 
IV. 
Attorneys’ Expenses and Fees 
One final thing—our reversal of the Court of Chancery’s fair value determination 
does not resolve all the appeals before us.  A cross-appeal from the petitioning party with 
the greatest number of shares actually entitled to appraisal, Magnetar Capital Master Fund 
Ltd, and a few other petitioners represented by the same law firms224 challenges the Court 
of Chancery’s allocation of expenses.  These cross-appellants contend that the Court of 
Chancery abused its discretion225 in allocating all of the expenses incurred by Lead 
Counsel226 in litigating the fair value determination among only those shares actually 
entitled to appraisal.  The cross-appellants’ shares accounted for just 14% of the shares that 
initially demanded appraisal, and thus the cross-appellants argue that it was unfair for the 
court to saddle them with all the expenses while allowing T. Rowe Price & Associates (“T. 
Rowe”), which was initially the largest petitioner, to avoid paying anything.   
The appraisal class was originally much larger than the 5,505,730 shares ultimately 
deemed entitled to appraisal.  A total of 38,765,130 shares initially demanded appraisal, 
                                              
224 Heyman Enerio Gattuso & Hirzel LLP and Lowenstein Sandler LLP. 
225 See Scion Breckenridge Managing Member v. ASB Allegiance Real Estate Fund, 68 A.3d 665, 
675 (Del. 2013) (reviewing fee award for abuse of discretion).  
226 Grant & Eisenhofer P.A. 
 
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and Lead Counsel obtained that status because it represented 83% of those shares.  The 
Company challenged the entitlement to appraisal of many of those shares.  A group of 
entities tied to T. Rowe beneficially owned a large portion of the disputed shares, 
26,732,930 shares.  But though the qualifications of those shares were contested, the parties 
agreed to delay resolution of their entitlement until after the fair value trial.  Lead Counsel 
thus retained its status and litigated the fair value trial.  
After trial, the Court of Chancery ultimately held that T. Rowe’s shares had actually 
voted for the Merger and thus were not entitled to appraisal.  T. Rowe had the option to 
appeal that decision. 
But T. Rowe soon gained settlement leverage from the post-trial decision on fair 
value a few weeks later: the decision awarded $3.87 per share more than the deal price to 
the shares entitled to appraisal.  Given the threat that T. Rowe might appeal the decision 
on its entitlement to appraisal and, if it succeeded, be entitled to the higher fair value award 
(if that also survived an appeal), T. Rowe was able to strike a settlement with the Company 
for the Merger consideration plus $28 million in interest.227  (Lead Counsel received $4.2 
million of that amount as its contingency fee.)228   
Although T. Rowe benefitted from the fair value award through settlement leverage, 
Lead Counsel chose not to allocate any of its expenses from the fair value litigation to T. 
                                              
227 Dell Fees & Expenses, 2016 WL 6069017, at *5. 
228 Id. 
 
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Rowe.  Rather, Lead Counsel sought an additional benefit for its client by requesting its 
expenses be paid only by those shares that the trial court actually found entitled to appraisal. 
Magnetar objected.  (Its 3,865,820 shares accounted for more than 70% of the final 
appraisal class.)229  But the Court of Chancery denied its objection.  First, the Court of 
Chancery held that it could not require T. Rowe to bear any of the expenses because Section 
262(j) provides that the Court of Chancery has discretion to “order all or a portion of the 
expenses” incurred through the appraisal proceedings “pro rata against the value of all the 
shares entitled to an appraisal.”230  The Court of Chancery had held that T. Rowe’s shares 
were actually not entitled to appraisal.  Thus, the court relied on the statutory language in 
deciding not to award expenses against T. Rowe and, instead, allocated the expenses 
against the rightful appraisal class—those entitled to appraisal—even though Section 
262(j) also provides that the court may allocate merely “a portion” of such expenses against 
those shares.  The court found the expenses “proportionate to the benefit achieved,” as also 
measured against the size of the final appraisal class, and thus deemed it reasonable to 
apportion them among solely the shares entitled to appraisal.231 
At the same time, the trial court acknowledged that, despite the language of Section 
262(j), it “could achieve the same functional result [sought by Magnetar] simply by 
                                              
229 Id. at *2, *4.  Following various rulings, 5,505,730 shares remained in the appraisal class.  Id. 
at *4.  This was a reduction of approximately 86% from the 38,765,130 shares that originally 
appeared on the verified list.  Id. at *4, *12. 
230 8 Del. C. 262(j) (emphasis added).  
231 Dell Fees & Expenses, 2016 WL 6069017, at *12 (“[T]he expenses of appraisal litigation do 
not scale proportionately with the size of the appraisal class.”).  
 
81 
 
reducing the total amount of expenses that it awards to [Lead Counsel], because a reduced 
award would force [Lead Counsel] to bear those expenses in the first instance and likely 
seek reimbursement from T. Rowe.”232  But the Court of Chancery resisted that approach 
because it viewed Magnetar’s requested allocation as “really an effort to reduce their share 
of the expenses.”233 
We conclude that the resulting allocation was inequitable and cannot stand.  Even 
if the Court of Chancery objected to Magnetar’s requested apportionment of expenses, the 
trial court surely had the capacity to craft a reasonable and equitable solution—one that 
takes into account T. Rowe’s relationship with Lead Counsel, their control of the litigation, 
and the reciprocal benefits they obtained as a result.  
    We fail to see how the Court of Chancery could refuse to reduce the amount of 
expenses owed by Magnetar and other stockholders entitled to appraisal to account in some 
balanced and fair way for the benefits that Lead Counsel obtained through its representation 
of T. Rowe and that T. Rowe obtained thanks to the fair value award and the settlement 
leverage it gained by delaying resolution of its entitlement to appraisal until after trial.  
Section 262(j) plays an important role in preventing free-riding by petitioners at the 
expense of other petitioners.  That role also includes not enabling unfair opportunism by a 
large petitioner who wields its clout to secure control of an appraisal and then uses the 
                                              
232 Id. 
233 Id. 
 
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leverage of the appraisal to obtain a favorable settlement at a time when its entitlement to 
appraisal is in doubt and subject to definitive resolution on appeal. 
Given our rulings on fair value here, we decline to address the precise manner in 
which the Court of Chancery must account on remand for T. Rowe’s role in this litigation, 
its relationship with Lead Counsel, and the benefits it obtained.  But we hold that it must 
do so.   Although the Court of Chancery need not award expenses against T. Rowe, it must 
make a reasoned and sizable reduction in those awarded against the shares entitled to 
appraisal to account for the fair share T. Rowe should have borne, but that Lead Counsel 
chose not to seek from it.  To the extent Lead Counsel wished to cut T. Rowe a break, it 
should not have done so against the other petitioners to whom it owed a fiduciary duty as 
Lead Counsel. 
Consistent with this decision, we grant Magnetar leave to seek a reasonable fee from 
other petitioners who benefit from its efforts to reduce the expense award against the shares 
entitled to appraisal, and the Court of Chancery shall consider any such application in the 
course of resolving any further dispute about expenses that arises on remand.