Dell computer corporate facility. Photo: Ken Wolter/Shutterstock.com

A class of Dell Inc. investors have accused Michael Dell and Silver Lake Group LLC in Delaware Chancery Court of muscling through a share exchange transaction, which allegedly cost them billions of dollars and created a “windfall” for the company's controllers.

The suit, made public Wednesday, is the latest challenge to the transaction, which converted shares tied to Dell's interest in a valuable computer visualization firm into shares that tracked the business as a whole. According to the complaint, the compensation Dell offered for the valuable Class V stock was “nowhere near” the value of their stock, thanks in part to a bloated valuation of the company.

In the 88-page redacted filing, investors accused CEO Michael Dell and Silver Lake of setting up a “sham” special committee to oversee the proposal, only to then sideline the panel when stockholders pushed back on the deal.

According to the filing, Dell and Silver Lake threatened to pursue an initial public offering, followed by a forced conversion to Class C shares, if the Class V stockholders did not cooperate. That alternative, the complaint said, would be even more damaging to investors, and was enough to secure the approval of 61 percent of all Class V stockholder's at a special meeting in December.

At the time, Class V stock was consistently trading around $150 per share, but the plaintiffs said they only received $120 for each share that was converted. Even then, the complaint said, Dell's valuation of the Class C shares was premised on an “absurd overstatement” of Dell's core equity value and the “fanciful” notion that it had more than doubled from $19.5 billion to $48.4 billion immediately before negotiations commenced.

“Simply put, Dell printed its own money to pay for the transaction,” plaintiffs' attorneys from Quinn Emanuel Urquhart & Sullivan and Friedman Oster & Tejtel wrote in the complaint.

Dell's press shop did not immediately respond to a request for comment.

The case is at least the fourth filed in Delaware, challenging actions taken by Michael Dell and Silver Lake, which took control of the Texas-based computer tech firm in a $25 million management buyout in 2013.

According to the complaint, Dell first announced a $109-per-share proposal last July, which was approved by a special committee tasked with evaluating the deal. The initial proposal, however, led to a “revolt” among investors, including a large activist investor that launched a campaign against the initial deal.

The lawsuit accused the special committee of essentially rubber stamping the proposed transaction and “standing idly by” as Dell and its financial advisers negotiated directly with a small group of stockholders. During the talks, the plaintiffs alleged, Michael Dell and Silver Lake eventually increased the offer to $120, while also using the threat of the the IPO and forced conversion as leverage over the investors

“While the special committee acted as a neutered bystander to the negotiations, Dell offered a small increase in consideration and put the Class V transaction to a coerced and uninformed vote,” the complaint said. “Unsurprisingly, given that the special committee had already stated its preference for the same deal at a lower price point, the special committee once again accepted the controllers' offer and recommended in favor of the transaction.”

The two-count complaint, initially filed Feb. 14, alleges breaches of fiduciary duty by both Dell's directors and its controllers, and seeks to recoup damages on behalf of stockholders.

The plaintiffs are represented by Chad Johnson, Noam Mandel and George Phillips of Quinn Emanuel and Jeremy S. Friedman and David F.E. Tejtel of Friedman Oster in New York. Ned Weinberger and Thomas Curry of Labaton Sucharow and Peter B. Andrews, Craig J. Springer and David Sborz of Andrews & Springer in Wilmington are also listed as attorneys in the case.

An online docket-tracking service did not yet list counsel for the defendants.

The case, captioned Steamfitters Local 449 v. Dell, has been assigned to Vice Chancellor J. Travis Laster.