Novel court case sets fair value in statutory merger dissention

| 14/09/2015 | 0 Comments
CNS Business

Cayman Islands courts

(CNS Business): A recent case before the Cayman Islands Grand Court has provided highly anticipated guidance on calculating the fair value of a dissenting investor’s shares, following the successful completion of a statutory merger. Statutory mergers have been part of the Companies Law since 2009, allowing a faster, more efficient route for many corporate transactions, such as takeovers, restructurings and reorganisations, without the need for a court supervised process.

The case, involving Russian oil field services firm Integra, was the first time the court has made such a decision under section 238 of the Cayman Islands Companies Law, which basically involves a valuation or appraisal action. Such court-led valuations are more commonly seen elsewhere in North America, notably Delaware and Canada, but this was a first for Cayman.

Integra, represented by Walkers, completed a management buyout deal in February 2014, which offered US$10 per share. This was rejected by a group of dissenting shareholders (17%), represented by Maples and Calder, but the merger was passed by special resolution, with the support of 80% of shareholders.

In the petitioning, before Justice Jones QC, which lasted five days, after listening to the expert valuations proposed by either side, the court ruled that the fair value of the company at the date of the merger was in fact US$11.70 per share, and ordered payment of that amount, plus interest, to be made to the dissenters.

This decision provides the first indication as how these complex issues will be handled by the Cayman court. As the Cayman Islands merger framework is so widely used, this precedent will be of interest to all parties involved in merger or buyout transactions.

In determining fair value of Integra of US$105 million, the court highlighted how every case is different and should be treated as such. “As anticipated, the Court has relied heavily on the decisions of both the Delaware and Canadian courts in comparable circumstances,” Walkers said in a statement. “The circumstances surrounding the Integra merger were unusual which led to the Courts emphasising that there is no one-size fits all approach and that each case must be specifically examined on its own facts.”

Although the original offer price was 45% above Integra’s share price on the London Stock Exchange, the court leaned towards, what Maples described, as the “more nuanced” expert evidence from the dissenting shareholders. A Discounted Cash Flow approach was taken to valuation, rather than the market value methodology, because of the relative illiquidity of Integra’s traded securities (Global Depository Receipts), which were less appropriate for valuation.

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Category: Finance, Financial Services, Law

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