In 2013, founder Michael Dell and private equity firm Silver Lake bought Dell, Inc. for USD 13.75 per share. With roughly 1.765 billion shares outstanding, that meant a total purchase price of about USD 24 billion.

Not everyone agreed that this was the right price.

Several shareholders went to court, arguing that USD 13.75 per share was too low and Dell was worth far more. What followed was a multi-year legal battle centered on a seemingly simple question: what was Dell actually worth at the time of purchase?

The answers varied dramatically.

The shareholders’ expert valued Dell at USD 28.61 per share — roughly USD 50 billion in total. Dell’s own expert arrived at USD 12.68 per share — about USD 22 billion. The Delaware Court of Chancery settled on USD 17.62 per share (around USD 31 billion). But on appeal, the Delaware Supreme Court concluded that the original deal price of USD 13.75 per share — USD 24 billion — was fair after all.

The same company. Recognised valuation methods. Experienced and competent experts. Yet differences of billions of dollars.

How is that possible? Is valuation inherently subjective? Is one method “right” and another “wrong”? Or are such differences the predictable consequence of economic assumptions embedded in seemingly technical models?

This first article in our valuation series starts to answer these questions. Divergent valuation outcomes do not necessarily reflect incorrectness or bias. Rather, they often stem from:

• The use of different valuation approaches that answer different economic questions; and
• Differences within those approaches, especially assumptions about risk, growth, and comparability.

In valuation, the final number is only the surface. The real story lies in the chosen valuation approach and the assumptions beneath it.

Different valuation approaches

There are three main valuation approaches: the market approach, the income approach, and the cost approach.

Each approach embodies a distinct valuation perspective:

• The market approach asks: how are comparable assets or companies priced by market participants, whether in public markets or recent transactions?
• The income approach asks: what is the present value of the future cash flows the asset is expected to generate, adjusted for risk and time?
• The cost approach asks: what would it cost today to recreate or replace the asset, given current prices and technology?

Because these approaches rely on different logic and different data sources, they may not yield identical results.

This does not mean that one approach is “correct” and the others are “wrong.” It means that valuation depends on the question being asked and the information available.

Differences within approaches

Even more consequential than the choice of method are the differences that arise within a single valuation approach. Seemingly modest changes in key assumptions can materially alter the resulting valuation.

This sensitivity is not accidental. Valuation models are mechanically precise: the formulas themselves are clear and consistent. The numbers used in them, such as growth expectations or risk estimates, require judgement.

The income approach is often seen as particularly assumption-heavy because it requires explicit decisions about:

• Expected future cash flows,
• The discount rate applied to these cash flows to reflect risk and the time value of money, and
• The terminal value, which often represents a large share of total value.

Even modest changes in these inputs can have a significant impact on the result. We will illustrate this sensitivity in upcoming articles.

The market approach also involves judgment. It requires selecting appropriate comparable companies or transactions, adjusting financial figures where necessary, and choosing suitable valuation multiples. The sensitivity to these decisions will also be looked at in upcoming articles.

The cost approach typically relies more heavily on observable cost data, which can make it appear less assumption driven. However, it does not capture expectations about future earnings, which are often central to the value of income-generating businesses.

Outlook

Returning to the Dell case: The shareholders, Dell and the Court of Chancery all relied on the same valuation framework: an income approach using a discounted cash flow (DCF) analysis. Yet their conclusions diverged substantially because they made different assumptions about future cash flows, long-term growth and risk.

The Supreme Court, by contrast, gave greater weight to a market approach alongside the income approach. That shift in emphasis led to a different conclusion once again.

This does not mean valuation is arbitrary. It means that valuation requires disciplined judgment. Methods must be chosen carefully. Assumptions must be transparent. And conclusions must be supported by evidence.

The purpose of this article has been to show why valuation results can differ — sometimes materially — even when sophisticated experts apply recognised techniques. In the articles that follow, we will examine some key valuation parameters of the different approaches in more depth and discuss how they can be selected, justified and tested in a rigorous and evidence-based manner.

You can find more information on the case and the discussions around choice of methodology and assumptions in the various court documents including:

• The decision of the Chancery Court
• The decision of the Supreme Court

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