Dell Technologies Inc. faces a shareholder class action challenging an allegedly “unfair and coerced transfer of at least $10 billion in value away from Dell’s Class V stockholders .”
The complaint was filed in Delaware Chancery Court of Delaware by lead plaintiff Miramar Police Officers’ Retirement Plan. The class claims Dell and its board of directors initiated a scheme stemming from a merger that retired the company’s Class V shares in a “self-interested transaction that violated basic norms of Delaware corporate law.”
“They unfairly stripped value from Class V stockholders and converted it to themselves,” the class claims. “This was a transaction that no truly independent directors would approve.”
The class also claims that Dell made threats about potentially “even worse” outcomes to coerce a vote to retire the class of stock.
The Class V stock was one of four options prior to Dell’s retirement transaction, and traded at a “steep discount” when compared to its common stock. The Class V shares’ value were tied to Dell’s interest in “fast-growing cloud computing” firm VMware Inc.
“The Class V stock consistently traded at a steep discount – of up to 45% – to the VMware common stock that provided the underlying economic value of the Class V Stock,” the complaint states. “In the aggregate, this divergence represented an approximately $10 billion valuation discount for what should have been the same underlying equity rights.”
Before the transaction had completed, members of the Dell board including CEO Michael Dell allegedly destroyed the tracking feature of the Class V stock which stripped the class of its ability to track the economic prospects of their shares, according to the complaint.
Holders of Class V stock were then given two options following the transaction, an exchange for a class of common stock which at the time had no public market value or $120 in cash, with the cash option subject to proration, according to the 48-page complaint.
“Upon the Closing, the members of Dell management profited enormously because their equity vested as a result of the inflated Dell valuation,” The class claims.
The class seeks unspecified damages and a declaration the Dell’s board members breached their fiduciary duties to their shareholders.
The class is represented by Michael J. Barry, Christine M. Mackintosh and Joseph L. Christensen of Grant & Eisenhofer P.A. from Wilmington, DE.