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T. Rowe Price to Cough Up $194M for the Dell Voting Error
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T. Rowe Price Group, Inc. (TROW - Free Report) , one of the biggest mutual-fund companies in the U.S., has arrived at an arrangement per which it will spend about $194 million to recompense certain clients. The compensation pertains to a proxy voting error committed by the asset manager in relation to the 2013 leveraged buyout of Dell, Inc.
Details
Dell had offered $13.75 per share as the merger consideration which was deemed too low by T. Rowe Price's investment team. As a result, various T. Rowe Price funds, trusts and clients appealed in the Delaware Court of Chancery and sought fair value evaluation for their Dell shares. Notably, these T. Rowe Price mutual funds, trusts, separately managed accounts and subadvised clients had about 31 million shares in total.
However, due to some error, voting instructions of such clients' shares were tendered as "For" the merger, rather than "Against". Therefore, as per the court’s verdict on May 11, 2016, T. Rowe Price's fund, trust and clients’ appeal for pursuing fair value for Dell shares were deemed ineligible due to the voting error.
However, on May 31, 2016, the court settled Dell's fair value per share at $17.62 and not $13.75, a difference of more than 28%. Therefore, T. Rowe Price is liable to compensate the affected clients for the discrepancy along with statutory interest due to rejection of appraisal rights.
Consequences
Therefore, T. Rowe Price is expected to record a one-time charge of about $194 million in the second quarter of 2016 after meeting the payments with available cash. Such a charge is anticipated to reduce net income by about $118 million or 46 cents per share, after tax.
The Equity Income Fund, Institutional Large-Cap Value Fund, Science & Technology Fund, Equity Income Portfolio, Equity Income Trust, U.S. Equities Trust–Large-Cap Value, and U.S. Large-Cap Value Equity Fund–SICAV are the funds and portfolios that are to be compensated.
William J. Stromberg, President and CEO of T. Rowe Price said, "T. Rowe Price has a long history of putting our clients' interests first, and that is what we are doing here."
He further stated that, "Since this situation began, our focus has been on securing fair value from the Dell buyout for our clients. The court's determination that the original buyout consideration offered by Dell was too low validated our original investment view. By compensating our clients based on the court's May 31, 2016, ruling, clients will come out ahead as compared with how they would have fared had they taken the merger consideration."
Conclusion
T. Rowe Price remains debt-free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $3.1 billion as of Mar 31, 2016, which supports the company’s ability to keep investing. Therefore, such compensations will not materially impact the company’s financial goals and strategies.
Currently, T. Rowe Price carries a Zacks Rank #3 (Hold). Some better-ranked finance stocks include Artisan Partners Asset Management Inc. (APAM - Free Report) , GAMCO Investors, Inc. and SEI Investments Co. (SEIC - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).
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T. Rowe Price to Cough Up $194M for the Dell Voting Error
T. Rowe Price Group, Inc. (TROW - Free Report) , one of the biggest mutual-fund companies in the U.S., has arrived at an arrangement per which it will spend about $194 million to recompense certain clients. The compensation pertains to a proxy voting error committed by the asset manager in relation to the 2013 leveraged buyout of Dell, Inc.
Details
Dell had offered $13.75 per share as the merger consideration which was deemed too low by T. Rowe Price's investment team. As a result, various T. Rowe Price funds, trusts and clients appealed in the Delaware Court of Chancery and sought fair value evaluation for their Dell shares. Notably, these T. Rowe Price mutual funds, trusts, separately managed accounts and subadvised clients had about 31 million shares in total.
However, due to some error, voting instructions of such clients' shares were tendered as "For" the merger, rather than "Against". Therefore, as per the court’s verdict on May 11, 2016, T. Rowe Price's fund, trust and clients’ appeal for pursuing fair value for Dell shares were deemed ineligible due to the voting error.
However, on May 31, 2016, the court settled Dell's fair value per share at $17.62 and not $13.75, a difference of more than 28%. Therefore, T. Rowe Price is liable to compensate the affected clients for the discrepancy along with statutory interest due to rejection of appraisal rights.
Consequences
Therefore, T. Rowe Price is expected to record a one-time charge of about $194 million in the second quarter of 2016 after meeting the payments with available cash. Such a charge is anticipated to reduce net income by about $118 million or 46 cents per share, after tax.
The Equity Income Fund, Institutional Large-Cap Value Fund, Science & Technology Fund, Equity Income Portfolio, Equity Income Trust, U.S. Equities Trust–Large-Cap Value, and U.S. Large-Cap Value Equity Fund–SICAV are the funds and portfolios that are to be compensated.
William J. Stromberg, President and CEO of T. Rowe Price said, "T. Rowe Price has a long history of putting our clients' interests first, and that is what we are doing here."
He further stated that, "Since this situation began, our focus has been on securing fair value from the Dell buyout for our clients. The court's determination that the original buyout consideration offered by Dell was too low validated our original investment view. By compensating our clients based on the court's May 31, 2016, ruling, clients will come out ahead as compared with how they would have fared had they taken the merger consideration."
Conclusion
T. Rowe Price remains debt-free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $3.1 billion as of Mar 31, 2016, which supports the company’s ability to keep investing. Therefore, such compensations will not materially impact the company’s financial goals and strategies.
Currently, T. Rowe Price carries a Zacks Rank #3 (Hold). Some better-ranked finance stocks include Artisan Partners Asset Management Inc. (APAM - Free Report) , GAMCO Investors, Inc. and SEI Investments Co. (SEIC - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>