Dell Technologies, the software and laptop company controlled by Michael Dell and private equity group Silver Lake, has agreed to pay $1bn to settle a lawsuit over its acquisition of software company VMware, which would be one of the biggest shareholder awards in the Delaware Court of Chancery.
The case dates to 2018, when Dell’s eponymous company re-entered public markets through a reverse merger. Previously owned by Dell and Silver Lake, Dell Technologies listed at an enterprise value of about $100bn.
The lawsuit stemmed from a dispute over “tracking stock” designed to represent ownership in VMware, a listed software company majority owned by Dell Technologies. To go public, Dell Technologies swapped its privately held shares and cash for the listed VMware tracking stock at an acquisition value of $24bn. Among the tracking stock shareholders to participate in the deal were big investors Elliott Management, Carl Icahn and BlackRock.
Shareholders who filed the lawsuit in early 2019 alleged that Michael Dell, Silver Lake and other directors of Dell Technologies had sought to “crater the market value” of the tracking stock and had used “coercive, strong-arm tactics” to push the reverse merger through before it was approved by a majority of independent tracking stockholders.
Ned Weinberger of Labaton Sucharow, the law firm representing the plaintiffs, said he believed the $1bn settlement, if approved by the court, “would represent one of the largest, if not the largest, cash recoveries for stockholders in the history of the Court of Chancery” of Delaware, the US state where most corporate disputes are litigated.
“We are pleased to have reached what we believe to be a very fair and favourable resolution on the eve of trial,” Weinberger said.
In a statement, Dell Technologies said that an independent board committee approved the settlement. Silver Lake declined to comment.
The shareholders also settled with the investment bank Goldman Sachs, who shareholders had accused of “aiding and abetting” Dell and Silver Lake. Goldman declined to comment.
Despite the cost of the $1bn payment, Michael Dell and Silver Lake have reaped tens of billions of dollars in profits from their investment, backed by liberal amounts of debt.
The pair first took Dell Technologies private in 2013 at a $25bn valuation. In 2015, Dell Technologies acquired software company EMC for $67bn.
EMC at the time held a majority stake in VMware. Instead of paying cash to acquire VMware outright, Dell issued EMC shareholders the tracking stock that would become the disputed security in the litigation.
Earlier this year chipmaker Broadcom announced a transaction to acquire VMware at a $70bn valuation, a deal that has yet to close.