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Dell agrees to pay $1b to settle claims it shortchanged stockholders during EMC acquisition

Drawing a line under the share swap drama of 2018, or trying to...

Dell has agreed to pay shareholders $1 billion to settle claims it didn't give them the full picture when using their allegedly undervalued shares to finance the $67 billion purchase of EMC in 2016.

The financing of the acquisition took significantly longer to close, though, and the swap of special Dell stock that the shareholders were alleging shortchanged them by billions actually took place in late 2018.

According to the company's SEC filing today, Dell, along with co-defendants Silver Lake Group and Goldman Sachs, agreed to settle the Delaware suit with former holders of the Class V common stock, who had been claiming Dell and co. breached their fiduciary duties under Delaware law by offering a transaction value that was allegedly "billions of dollars" below fair value.

Dell told The Register: "An independent special committee of the board has approved the settlement payment by the company. The settlement remains subject to court approval."

In the December 2018 transaction, Dell paid $14 billion in cash and issued 149,387,617 shares of its Class C common stock to holders of its Class V common stock in exchange for their Class V shares.

The original complaint [PDF] – which was amended multiple times – claimed the VMware cash price that the Class V stock was supposed to have tracked was $34 per share higher than Dell paid at the time of the swap. It also alleged the Dell Class C stock price share of the deal was internally valued at $4 billion, rather than the claimed $10 billion.

It asserted: "Class V Stockholders were coerced into voting in favor of the deal by Michael Dell and Silver Lake's disloyal threats of a forced conversion."

The complaint also alleged that Dell's specially formed committee to assess options for the conversion "was never independent and never conducted real negotiations"; that the process was "tainted by coercive threats"; and that the Class V stockholders did "not receiv[e] critical information necessary to make an informed choice."

Notoriously outspoken investor Carl Icahn took up the cudgels for the Class V crew as well, claiming in an open letter to the SEC at the time: "How else can one explain an agreement that so obviously transfers $11 billion in value to the controlling stockholders at the expense of the minority stockholders?"

Dell, on the other hand, claimed in November 2018 that its "increased offer," which gave Class V investors an additional $2.2 billion in aggregate implied value and equated to a total market cap of $23.9 billion, was a "result of significant, detailed input" from those shareholders.

Dell said this week that the settlement – which (if it clears the court) will resolve all of the claims against Silver Lake, Goldman Sachs, and Dell itself – will be reflected in the company's fiscal third quarter results. ®

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