InterOil Decision: Yukon Court Of Appeal Offers Guidance For Determining The Fair Value Of Shares

• Published date: 11 May 2020
• Author: Ms Jessica Brown, Lindsay Cox and Ben Otto
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, M&A/Private Equity, Corporate and Company Law, Trials & Appeals & Compensation, Shareholders
• Law Firm: Burnet, Duckworth & Palmer LLP

The most recent decision from the Yukon Court of Appeal (the Court of Appeal), Carlock v ExxonMobil Canada Holdings ULC, 2020 YKCA 4, determining the fair value of the shares held by dissenting shareholders of InterOil Corporation (InterOil) following ExxonMobil Canada Holdings ULC's (ExxonMobil) acquisition of InterOil, provides guidance that Canadian courts will take a negotiated deal price between two arm's length parties in public business combination transactions to be a strong indicator of fair value.

Background

On February 22, 2017, InterOil announced the completion of ExxonMobil's acquisition of all of its common shares (InterOil Shares) by way of plan of arrangement (the Arrangement). Pursuant to the Arrangement, the holders (the Shareholders) of InterOil Shares received US$49.98 per InterOil Share comprised of $45 in shares of ExxonMobil and a contingent resource payment in the amount of $4.48 (together, the Consideration). Upon the completion of the Arrangement, the InterOil Shares were de-listed from the New York Stock Exchange.

Prior to entering into the Arrangement, the parties had previously agreed to a different plan of arrangement on similar terms (the Initial Arrangement). However, the Court of Appeal found that the Supreme Court of Yukon (the Supreme Court) erred in approving the Initial Arrangement and set it aside. The parties took a number of steps to address the governance deficiencies that were identified by the Court of Appeal and entered into the Arrangement.

Although the Arrangement was approved by over 90% of the Shareholders, 0.5% of the Shareholders did not agree that the Consideration reflected the "fair value" of the InterOil Shares and exercised their dissent and appraisal rights under the Yukon Business Corporations Act by applying to have the Supreme Court determine the fair value of the InterOil Shares.

In coming to its decision on fair value, the Supreme Court was of the belief that the Court of Appeal's decision in the Initial Arrangement precluded it from effectively giving any weight to the transaction price in assessing the fair value of the InterOil Shares. Relying primarily on expert testimony and a discounted cash flow (DCF) analysis, the Supreme Court determined that the Consideration did not reflect the fair value of the InterOil Shares and instead appraised them at $71.46 per InterOil Share. ExxonMobil appealed this decision to the Court of Appeal.

The Appeal

ExxonMobil's appeal of the Supreme Court's decision...