Grand Court rules on ‘fair value’ of shares in legal first


The Grand Court of the Cayman Islands has ruled for the first time on how the fair value of a dissenting investor's shares should be determined, following the successful completion of a statutory merger.

This is the first decision of its type under section 238 of the Cayman Islands Companies Law, which is akin to a valuation or appraisal action.

The case, which involved Integra Group, an oilfield services provider, was heard over five days before Justice Andrew Jones QC and his decision in these proceedings gives the first indication as to the manner in which the Grand Court will handle certain key issues arising in these complex scenarios.

Law firm Walkers acted for Integra Group. “The Cayman Islands merger framework is widely used, and this decision sets an important precedent of significant interest to all parties involved in merger or buyout transactions,” the firm said in a statement.

Walkers initially advised Integra, which operates in the Russian market, on a management buyout transaction which completed in February of 2014 and subsequently in relation to a challenge as to the merger price by a small group of related institutional shareholders.

Whilst the right to seek a determination from the court as to fair value in these circumstances has been a feature of a number of North American jurisdictions for some time, with a variety of different approaches adopted, this exercise is entirely novel in the Cayman Islands, Walkers said.

In this case, the deal was approved by a majority of shareholders at an offer price of $10 per share, itself a significant premium on the pre-offer share price, and was supported by a recommendation by an independent committee of executives and a fairness opinion from a major bank.

However, faced with a claim that the offer price was nevertheless insufficient, the Court turned to a significant body of expert valuation evidence. The Court signalled that it will take a detailed and objective approach to valuation having regard to all of the available evidence in order to determine the fair value.

The approaches taken by the Delaware and Canadian courts were considered helpful in looking at the dissent process, but the judgment is clear that there is no "one size fits all" model, the appropriate valuation methodology being a matter which would vary on a case to case basis. This decision remains subject to appeal. 

Grand Court of the Cayman Islands, Fair Value, Company Law, Integra Group, Walkers

Cayman Funds