U.S. stocks are roughly unchanged in early afternoon trading on Wednesday, with the S&P 500 (SNPINDEX:^SPX) and the Dow Jones Industrial Average (DJINDICES:^DJI) (DJINDICES: $INDU) down 0.07% and 0.13%, respectively, at 12:30 p.m. EDT.
A Delaware judge confirms Dell's "heist"
Three years ago, this column described the $13.65 per share Michael Dell and Silver Lake Partners were offering Dell shareholders to take the PC manufacturer private as an "insolent offer" and a "heist" and castigated Dell's board for supporting the deal. It appears J. Travis Laster agrees with me.
Yesterday, the Honorable J. Travis Laster, a Vice Chancellor on the Court of Chancery of the State of Delaware, ruled that the buyout undervalued the company. Laster is of the opinion that Dell was worth $17.62 per share at the time of the deal, 28% higher than the $13.75 the acquirers ultimately paid.
According to The Wall Street Journal, "the buyers likely will owe a handful of former shareholders who challenged the deal about $35 million, including interest." That figure would have been a bit higher but for the fact that one of the challengers, T. Rowe Price, which owned 30 million shares, mistakenly voted in favor of the deal.
The $35 million "gross up" is a pittance -- all the more so because Laster's valuation looks conservative. In November 2014, a year after the deal was completed, Bloomberg reported that Michael Dell and Silver Lake had already earned a paper gain of 90% on their investment. Silver Lake Partners' executives would no doubt refer to these gains as "excess returns," but it would be more accurate to say they are the haul on a well-executed heist.
Valeant gives its former CEO a $10 million departure gift
And speaking of heists, Valeant Pharmaceuticals International, the beleaguered pharmaceutical company that has seen its share price decline nearly 90% since last August, disclosed its separation agreement with former CEO J. Michael Pearson that provides for severance and consulting fees topping $10 million.
The severance payment alone is $9 million, and for his consulting engagement, Pearson earns $83,333 per month through 2016...to work one day per week.
Given that the board pointed a (timid) finger at Pearson for some of its troubles in the March 21 press release announcing his departure, it is properly outrageous that it should agree to pay him a multimillion-dollar severance, particularly in light of the size of his existing shareholding. Indeed, part of those shares were awarded based on share price gains that have since evaporated.
Pearson's current net worth is $297 million, according to data from Bloomberg, although it has fallen significantly with Valeant's share price -- less than a year ago, he was a paper billionaire.
Despite significant representation of high-profile activist investors on its corporate board (including Pershing Square Capital Management's Bill Ackman), Valeant still has plenty of room for improvement in terms of corporate governance -- in particular, on executive compensation.
For example, the compensation package for new CEO Joseph Papa contains large incentives contingent on short-term stock price gains, and earlier this month, Valeant announced it would pay three top executives $1 million retention bonuses and "special equity awards" totaling nearly $8 million.
Berkshire Hathaway Chairman Charlie Munger famously referred to Valeant as "a sewer"; it's clear that much work remains in order to sanitize the company's governance.