Michael Dell.

The Delaware Supreme Court on Thursday panned a vice chancellor's decision to completely disregard the deal price in an appraisal ruling last year that found Michael Dell and private equity firm Silver Lake Partners had shortchanged investors in a going-private merger of Dell Inc. in 2013.

The court en banc remanded the case to the Delaware Court of Chancery, rejecting Vice Chancellor J. Travis Laster's reasons for setting the fair value of the computer company $7 billion higher than the $24.4 billion that Michael Dell and Silver Lake had actually paid for it.

The deal price, the high court said, should have been given “heavy, if not dispositive weight.”

“The problem with the trial court's opinion is not, as the company argues, that it failed to take into account the stock price and deal price,” Justice Karen L. Valihura wrote for the court in an 82-page opinion.

“It simply decided to give it no weight. But the court nonetheless erred because its reasons for giving that data no weight—and for relying instead exclusively on its own discounted cash flow analysis to reach a fair value calculation of $17.62—do not follow from the court's key factual findings and from relevant, accepted financial principles.”

In May, Laster used his own discounted cash flow analysis, or DCF, to rule that Silver Lake should have paid $17.62 to acquire Dell, instead of the $13.75 the technology firm settled on after a back-and-forth sales process in which it twice sweetened the pot for dissenting stockholders.

Only 70 percent of the Dell shareholders voted in favor of the deal. Those opposed pursued the high-stakes appraisal action, arguing that Dell's fair value was more than twice the merger price. However, Laster last year booted approximately 27 million shares held by T. Rowe Price from the proceedings because of a mishap that caused them to be voted in favor of the merger.

In his ruling, Laster pointed to a number of market factors to reject the deal price as a reliable indicator of the company's fair value. Among other things, he said investors were too focused on short-term profits as Dell struggled to compete in the personal computer market, creating a “valuation gap,” which anchored deal negotiations at a low starting point.

He also pointed to the lack of strategic bidders that could have drove up bidding and earned dissenting Dell inventors a higher payout for their shares.

But Valihura said Thursday that neither of those conclusions was supported by the evidence in the record. Analyst and investor reaction to public information regarding the company was quickly reflected in its stock price, leaving “no rational basis” to find a disconnect between Dell's market value and its intrinsic value, Valihura wrote.

And Laster's “investor myopia” theory hinged on a so-called private-equity carve out that the high court since rejected as an indicator of fair value in DFC Global v. Muirfield Value Partners, she said.

“Overall, the weight of evidence shows that Dell's deal price has heavy, if not overriding, probative value” Valihura said. “The transaction process exemplifies many of the qualities that Delaware courts have found favor affording substantial, if not exclusive, weight to deal price in the fair value analysis.”

But the justice was also careful to warn that the market is always the best marker of fair value or that it should always be granted weight in valuation analyses. However, given the circumstances, market factors had painted an accurate picture of Dell's worth at the time of the 2013 sale.

“We only note that, when the evidence of market efficiency, fair play, low barriers to entry, outreach to all logical buyers, and the chance for any topping bidder to have the support of Mr. Dell's own votes is so compelling, then failure to give the resulting price heavy weight because the trial judge believes there was mispricing missed by all the Dell stockholders, analysts and potential buyers abuses even the wide discretion afforded the Court of Chancery in these difficult cases,” she said.

Valihura remanded the case with instructions that Laster either enter a judgment at the deal price or to explain his reasoning for reaching another conclusion that is in-line with the high court's ruling.

Gregory P. Williams, a Richards, Layton & Finger attorney who represented Dell, said the “entire team is very happy” with the ruling, but declined to comment further because the case is still pending in the Court of Chancery.

Stuart M. Grant of Grant & Eisenhofer represented the petitioners. He did not return a call Thursday seeking comment on the ruling.

The case is captioned In Re: Appraisal of Dell.