Dell Agrees to $1 Billion Class Action Payout

On November 16, 2022, Dell Technologies Inc. reached a $1 billion settlement with shareholders, according to a Dell 8-K filed with the U.S Securities and Exchange Commission. The announced agreement looks to resolve investors’ allegations that they were short-changed billions of dollars for their Class V stock in connection with a 2018 transaction that turned Dell into a public company. The settlement comes as the shareholder lawsuit alleging various breaches of fiduciary duties against Michael Dell, Silver Lake, and others was set to go to trial next month in the Delaware Court of Chancery.

In the asserted transaction valued at $24 billion, Dell’s controlling shareholders – Michael Dell, Egon Durban, and the private equity firm Silver Lake – allegedly expropriated $10.7 billion from public Class V shareholders by forcing them to convert their shares into cash or privately held shares of Class C common stock at an unfair price. Class V stock was a publicly traded “tracking stock” that tracked the performance of VMware, Inc.’s publicly traded shares. However, the class action complaint alleges the purported $120 per share consideration fell well below the market price of the VMware stock that the Class V stock was intended to track.

The alleged multi-billion-dollar windfall Dell’s controllers received at the expense of shareholders was further compounded by the “egregious” overvaluation of privately held Dell C shares – internally valued at $6 billion less than what Dell claimed – according to investors.

The class action complaint, initially filed on 8 November 2018, further alleges:

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While a special committee was established, Dell was able to bypass the committee, which was never independent or empowered to oversee the forced conversion

The controllers drastically overvalued Dell’s Class C stock, with substantial assistance from their financial advisor, Goldman Sachs, who received a $70 million success fee

The controllers and Goldman Sachs tainted the process by coercively threatening a forced conversion

The stockholder vote was the product of Class V stockholders receiving material misinformation and Dell omitting critical information

Prior to the claims filing procedure – which will allow investors to participate within the recovery process – the tentative $1 billion settlement must first be approved by Vice Chancellor Travis J. Laster. Vice Chancellor Laster previously rejected Michael Dell and the other defendants’ attempts to dismiss the suit, which set up the December 2022 trial.

The $1 billion payout covers claims against Michael Dell, other Dell directors, Silver Lake, as well as Goldman Sachs. “This is an historic result — one that can be the product only of a very strong case,” said Minor Myers, a professor at the University of Connecticut School of Law. “This is a good result, for sure, but the risk that the defendants faced at trial had to be colossal to result in a settlement like this.”

Once officially approved by the Vice Chancellor, this shareholder-related case will become:

The 17th billion-dollar settlement and 17th largest U.S. class action of all-time (coincidentally, just behind and just ahead of two American International Group, Inc. settlements, $1,009,500,000 in 2013 and $970,500,000 in 2015)
The largest settlement in a U.S. state court (the 16 larger settlements all took place in various U.S. federal courts)
The largest settlement reached in the Delaware Court of Chancery and the largest recorded in the state of Delaware, overall (surpassing the $300 million DaimlerChrysler AG settlement in USDC Delaware in February 2004)

ISS Securities Class Action Services is owned by Institutional Shareholder Services, the parent company of CIO.

Top 5 Shareholder Settlements in State Court

*Tentative settlement – awaiting court approval (likely in 2023)

Case Name	Settlement Amount	Settlement Year	Court Venue
Dell Technologies	$1 Billion	*	Delaware Court of Chancery
Caremark Rx	$310 Million	2016	Alabama Circuit Court
Activision Blizzard	$275 Million	2015	Delaware Court of Chancery
Kinder Morgan	$200 Million	2010	Kansas District Court
Digex	$165 Million	2010	Delaware Court of Chancery

Source: ISS Securities Class Action Services

Tags: Class Action, ISS SCAS, Securities Litigation

Real estate falls squarely in the value investing column nowadays. But once the asset class rebounds, what are the canniest segments to hold, with the strongest growth prospects globally?

That would be more niche property classes than the conventional ones, says a study from Northern Trust Asset Management that covers real estate investment trusts, the most common liquid means of investing in property and a good proxy for other investment vehicles in the space. Based on the study, NTAM believes two traditional types—industrial (mainly warehouses) and residential (apartments)—will do well, while offices and retail will still face challenges.

But smaller segments show much more promise, according to the NTAM research paper, written by Dan Phillips, director of asset allocation strategy, and his team.

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“Growth has been strong outside of traditional property types, as investors have shifted their focus to more needs-based sectors, and those sectors set to benefit from demographic trends,” the study says.

We’re talking data centers and cell towers, life sciences, senior housing and self-storage. Indeed, the diversified/other category in the firm’s study, which encompasses those four up-and-coming areas, has outperformed the traditional classes this year through the third quarter.

Everything is down, of course, but diversified has lost the least in 2022, off 23.1%. Over three years, on an annualized basis, diversified ranks second at -8.7%, trailing only residential’s 3.7% growth.

The growth story for data centers and communications towers is impressive. Data center net absorption (the capacity that’s rented out) has tripled since the first half of 2021, the study says, citing real estate company CBRE. Data use/mobile traffic is expected to grow 23% annually through at least 2027, per the Ericsson Mobility Report.

For instance, American Tower, the largest cell tower REIT, is down 17% this year amid worries about an economic slowdown, but that stock price has more than tripled over the past 10 years. Fundamentals are good: American Tower offers a dividend yield of 2.7%, a full percentage point better than the S&P 500’s. In the third quarter, net income increased by 12.9% and revenue by 10.2%. (The NTAM paper didn’t cite this or any other specific REITs.)

Meanwhile, there’s a lot of action in buildings rented out to health-care providers, who have a bright future given the aging of the population. Average vacancy in the top 100 metros in the first half of 2022 was 8%, an improvement of 0.4 from the comparable period in 2021.

“The lowest-cost setting with the highest-quality care should gain market share of an aging population,” the NTAM report states. Plus, “consumers continue to prefer retail-like locations from leading health systems,” which allows for a lot of flexibility as medical providers have their pick among storefront locations nowadays.

In the same vein, senior housing is enjoying huge demand. Senior housing occupancy grew by 0.7 in the third quarter, to 83.8%. Housing construction starts in this category decreased 64%, the NTAM study says, “while the market comes out of the pandemic and digests recent debt refinancing and cost challenges.” This pause “should be beneficial for fundamentals.”

The home-buying market, which has slowed somewhat yet remains healthy, benefits self-storage. Cushman & Wakefield finds that, in the second quarter, national asking rents were up 5.6% amid flat occupancy. No one, though, expects occupancy to remain flat. Construction starts were up 14% as developers ramp up to meet anticipated demand.