A US judge has ruled that the buyout of Dell by Michael Dell and Silver Lake Partners was underpriced by 22%.
The ruling may result in Michael Dell and Silver Lake Partners having to pay tens of millions to investors who were against the 2013 deal.
The lawsuit relates to 5.5 million Dell shares, with the recent ruling viewed as a win for the specialised hedge funds that try to get more money from mergers by filing a lawsuit dubbed appraisal, Reuters reported.
The lawsuit enables investors to seek a fair value for a particular merger by contesting it in court.
The lawsuit relating to the Dell buyout initially sought appraisal for about 40 million shares, but a significant number of shares were eliminated for procedural reasons.
In his ruling on 31 May, Vice Chancellor Travis Laster said fair value in Dell buyout was $17.62 per share, not $13.75 per share.
Including interest, investors who sought fair value for the Dell deal will receive about $20.84 per share.
Investors who opposed the Dell buyout claimed that fair value was $28.61 per share, while Michael Dell and Silver Lake hundreds argued that fair value was $12.68.
In September 2013, shareholders of Dell approved chairman and CEO Michael Dell’s $24.9bn buyout offer, in partnership with investment firm Silver Lake, as part of a plan to take the company private.
Laster said that the Michael Dell and Silver Lake exploited the fall in the company’s stock price and its board never assessed the intrinsic value of the deal before it was finalised.
Laster said: "The original merger consideration was dictated by what a financial sponsor could pay and still generate outsized returns."
The extra cost to be faced by both Silver Lake and Michael Dell as a result of the ruling is a reported $36m.
