T. Rowe Price proxy vote error costs firm $194M

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T. Rowe Price Group Inc. will pay $194 million to compensate some account holders because of mistakes the company made during a proxy vote.

The firm will make a one-time payment of about $194 million in the second quarter that will be funded with available cash. The move will reduce net income, after tax, by roughly $118 million, which breaks down to 46 cents in diluted earnings per share of common stock.

The mishap during a proxy vote associated with the 2013 leveraged buyout of Dell Inc., which was held in various portfolios in T. Rowe Price Mutual funds with about 31 million shares.

“T. Rowe Price has a long history of putting our clients’ interests first, and that is what we are doing here,” William J. Stromberg, CEO and President of T. Rowe Price, said in a statement about the compensation. “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.”

The T. Rowe Price finds and portfolios that will be paid include 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.

Essentially, in 2013 at the time of the buyout, T. Rowe Price concluded that the $13.75 per share consideration being offered by Dell was too low and opposed the deal. But a string of events, caused in large part by a complex system for handling proxy votes, resulted in a computer error that caused T. Rowe Price to vote for a deal it actually opposed.

T. Rowe’s funds, trusts and clients then filed a petition with the Delaware Court of Chancery to try and obtain fair value appraisal for its shares. But the court ruled, on May 11, that because of their vote in favor of the deal the petitioners were not eligible to pursue fair value.

Later that month the court did rule, however, that fair value per share for the Dell st0ck wasn’t $13.75 but $17.62, which validated T. Rowe Price’s initial stance on the stock price. As a result of that ruling T. Rowe will make payments to affected clients that covers the difference in valuation and statutory interest because of the denial of appraisal rights.

“The firm’s financial strength is rock solid, and we will make these payments from available cash. At March 31, 2016, our balance sheet showed cash and discretionary portfolio investment holdings of $1.9 billion. So, while we expect to record a one-time charge in the second quarter, we do not expect this will have a material effect on our financial condition or our ability to continue investing in our people and our strategic priorities,” Stromberg said.