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Judge Rules Michael Dell Underpriced Company in 2013 Buyout

A Delaware judge said the CEO and his partner underpaid when it bought the company for $25 billion, giving legitimacy to arguments made by opponents.

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Michael Dell

As Michael Dell and other executives of his namesake company continue to push their $67 billion bid to buy data storage giant EMC, they earlier this month had their attention brought back to the contentious 2013 buyout by the CEO that took Dell private.

A judge in Delaware's special corporate court ruled that the $25 billion buyout of Dell by Michael Dell and Silver Lake Partners was too low, saying the company at the time was worth more than $31 billion. The ruling by Vice Chancellor J. Travis Laster validated the arguments made at the time by activist investor Carl Icahn and other shareholders—such as financial services company T. Rowe Price—that Michael Dell and his partners were trying to benefit themselves by shortchanging stockholders.

They mounted a vigorous campaign to derail the buyout, extending the process for months and forcing the CEO to increase the amount of the proposal. However, in the end, Michael Dell and Silver Lake got the necessary number of shareholders to back the deal.

Michael Dell said he needed his company to go private in order to accelerate its transformation from a PC maker to an enterprise IT solutions and services provider that could better compete with the likes of Hewlett Packard Enterprise, IBM and Cisco Systems. The company for the past several years has aggressively built up its capabilities in such areas as data center infrastructure, software, security and the cloud. Going private would give Dell the leeway to be more long-term in its planning rather than having to worry about reporting its financial numbers every quarter, opening itself up to the scrutiny of financial analysts.

According to the Wall Street Journal, the judge's ruling is a good moral victory for Icahn and others, but most likely will have minimal impact. Dell will owe some ex-shareholders that had challenged the deal about $35 million, but T. Rowe Price—which mistakenly voted in favor of the deal despite being vocal in its opposition—will lose out on about $190 million for its 30 million shares, the newspaper said.

Dell expects to close the deal for EMC within the next few months. Dell officials recently said that the proposal had two major hurdles to overcome: the approval by Chinese antitrust regulators and the EMC shareholder vote. They said they are confident that China will soon follow the United States and European Union in OK'ing the merger.