The
InterOil History
To briefly recap, Exxon's acquisition of InterOil had been the subject of court proceedings, which had criticized certain elements of the process and led to fresh disclosure and a new shareholder meeting. Importantly, however, the basis of the deal changed only slightly – the cash price payable by Exxon remained the same and the contingent payment increased marginally. The shareholders of InterOil approved the acquisition as did the
Like most plans of arrangement, the InterOil plan allowed shareholders to exercise a statutory right of dissent and be paid the "fair value" of their shares. Obviously, shareholders would only exercise this right if they believed the payment they would receive under the plan did not reflect fair value.
Supreme Court Hearing
At the initial court hearing, the Chief Justice of the
The Chief Justice's reasoning primarily arose from his view that, because the original process to approve the plan of arrangement had been criticized and set aside in the previous court decisions, he was precluded from giving any weight to the transaction price which, as noted above, had never really changed. Accordingly, he found it necessary to determine fair value based on other evidence, namely the DCF analysis.
The Court of Appeal held the Chief Justice erred "by relying entirely on a speculative DCF evaluation in the face of reliable and objective market evidence of fair value". There was no reason not to look at the transaction price and market price as being persuasive indicators of fair value. The governance issues which had tainted the original process had been corrected. In fact, when the process was reviewed, there were good reasons to think the transaction price did reflect fair value, including:
- the extensive sales process that had been undertaken (even if it was not quite a formal public auction);
- the fact that a competing bidder had refused to top Exxon's bid even though it had a right to do so;
- the transaction price represented a significant premium to the pre-announcement market price of InterOil's shares over an extended time, and not just a "snapshot" premium; and
- the fact that InterOil's broad and sophisticated shareholder base had voted in favour of the transaction.
In a telling point, the
The decision includes a number of statements supportive of market prices being persuasive indicators of value. The Court also disagreed with the dissenting shareholder's argument that Exxon should have provided evidence of its own internal valuation work: "Exxon's subjective valuation of InterOil is not evidence of market value. It is evidence of value to user. The fact that Exxon might have been prepared to pay more for the shares than it did, assuming that to be the case, is beside the point. Exxon is required only to pay the market price."
Finally, in statements that should comfort dealmakers, the
Conclusion
In the result, the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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