I love this logic because it implies that if a private equity firm buys a company, the shareholders are automatically being screwed and should sue.
If you're an existing shareholder when a company goes private, you're forced to sell at a set price. That's why it's a legal issue. That forced sale is not a free market transaction.
If you look at the history of leveraged buyouts ("private equity" is usually powered by borrowing against the company's assets, not a pure cash transaction), the existing stockholders generally lose.
I agree with the author that having a judge determine the correct price seems perverse.
I get that this isn't a democratic government where we have to guarantee full protection under the law for an individual but what I'd the 51% decides the sale price should be 1picodollar per share and then the new owner awards the 51% with shares effectively giving back their ownership? I imagine this won't happen in real life but just as a thought experiment... should it be OK?
However, according to the article the judge thought the process was fair, that there was no way to sell the company for a higher price, and shareholders voted for the deal while possessing all relevant information. I think that given those facts the deal price should be considered fair.
Boy, that's certainly a can of worms. Is someone who builds up a great company with low equity, then intentionally runs it badly to lower the share price, acquires more shares, and then runs it well again, guilty of something? Or is that just how incentives work—they felt like they needed more investment in the business before they could give their all to it?
Does the board of directors contain competent and trustworthy people? Does an activist investor wield outsize influence? Are buyout rumors circulating?
Hard to know these things, that's a big part of why index funds are so popular.
Furthermore, even a passing acquaintance with human nature should lead you to the conclusion that people will routinely claim they are being screwed even when they are not.
Normally this is in fact not the case, because the acquirer has some sort of strategic reason behind their purchase that they believe will boost the value of the asset aside from simply operating the company as it had planned on doing prior to the acquisition. For instance, Silverlake/Dell is in the process of buying EMC - Dell/Silverlake believe that strategically, a combined Dell/EMC (or "Dell Technologies") is worth more than both companies on their own - but it's Silverlake/Dell/bond holder's cash that will make this happen. Therefor it's not realistic for current EMC shareholders to simply claim the value of EMC should be higher on its own because the purchase relies on operating synergies between Dell and EMC.
The Dell buyout by Silverlake is completely different, because throughout the sales process, it was clear that Michael Dell and Silverlake were not going to do anything to alter Dell's operational plan - that is, everything that Michael Dell and Silverlake were going to do to the company while private is pretty much exactly what the plan was had Dell remained public. So the judge decided to rule that Silverlake must have valued Dell at approximately what he ruled them to be. The case would be very different if Michael Dell/Silverlake were taking the company private and making major strategic changes to its businesses (shareholders could still sue, but the line of reasoning from the judge would be different).