The Yukon Court of Appeal recently allowed an appeal from a Supreme Court decision that awarded dissenting shareholders US$71.46 per share as fair value of their InterOil shares, a 43% premium over the transaction price of US$49.98. The trial court decision had generally been viewed as an outlier in fair value case law, given that the award represented a significant premium over the transaction price. The Court of Appeal found the transaction price reflected fair value and reduced the award to that amount.
It made a number of highly relevant and important remarks regarding the probity of evidence of fair value in the case at hand (which could also be relevant in other dissent rights matters), including:
- The transaction price reflected a negotiated price in a competitive market (even without a full auction) among well-informed and sophisticated parties.
- The transaction price represented a significant premium to the pre-announcement (and thus unaffected) stock price.
- Large sophisticated institutional investors who were InterOil shareholders, presumably experts in assessing value, accepted the deal price and voted in favour of the second plan of arrangement.
- Other interested bidders, such as OilSearch, chose not to increase their bids.
The Court of Appeal also noted the fair value set by the trial court at US$71.46 per InterOil share would have implied that a prospective purchaser of InterOil would have been willing to pay approximately US$1 billion more than the total amount Exxon paid for all the shares. The Court of Appeal agreed with Exxon it was unreasonable to believe, given the number of sophisticated parties involved in the transaction, that US$1 billion in value was simply “left on the table.”
The Court of Appeal decision underscores that fair value awarded in dissent proceedings must be rooted in “reliable and objective market evidence,” where such evidence is available, which should not be set aside in favour of “theoretical derivations of value [that are] rife with speculation or uncertainty.” This Yukon Court of Appeal decision could serve as an important roadmap to Canadian courts in future dissent rights cases.