Dissent Rights In M&A Transactions: Much Ado About Nothing?

In its recent decision in Carlock v ExxonMobil Canada Holdings ULC1, the Yukon Court of Appeal found that transaction price, on the basis of objective market evidence, was the best determination of fair value for dissenting shareholders in the takeover of public companies, including court-approved plans of arrangement.

Key Takeaways

This decision confirms that courts will give significant weight to objective market evidence when determining fair value for dissenters' shares in the context of public mergers and acquisitions and will generally prefer market valuation over theoretical approaches where the market is demonstrably efficient. Transaction price will be considered objective market evidence where the price was negotiated in a competitive market consisting of well-informed and sophisticated parties, and where there is no evidence that a different process would have led to a better result for shareholders. Background

InterOil Corporation (InterOil), a Yukon-incorporated early stage oil and gas company, owned a 36.5% interest in a joint venture to develop a project in Papua New Guinea. This interest was its primary asset, the company had no revenue-generating assets, and InterOil needed to raise significant capital to meet its financial commitments to the project.

As a result, InterOil commenced a process to raise capital which resulted in several companies expressing interest in acquiring the company. InterOil received and revised several bids, including a topping bid, and ultimately reached an agreement with ExxonMobil Canada Holdings ULC (Exxon) whereby Exxon would acquire InterOil by way of plan of arrangement for consideration of approximately $2 billion. The plan of arrangement was approved by 90% of InterOil's shareholders and by the Yukon Supreme Court2. Less than 0.5% of shareholders exercised their right to dissent. The dissenting shareholders then commenced a lawsuit seeking fair value for their shares.

The Yukon Court of Appeal Decision

The Yukon Supreme Court rejected the transaction price of US$49.98 per InterOil share as fair value largely as a result of the flawed corporate governance process leading to the transaction. In doing so, the court assessed fair value at US$71.46 per InterOil share based on an expert discounted cash flow analysis.

The Court of Appeal of Yukon overturned the lower court decision, held that the agreed-upon purchase price reflected fair value for shareholders, and confirmed that where there is...