Yukon Court Of Appeal Restores Stability To Appraisal Proceedings

On February 7, the Yukon Court of Appeal released its decision in a case followed closely by the business community in Canada: Carlock v ExxonMobil Canada Holdings ULC1. This decision removes uncertainty created by the lower court's ruling and restores stability to appraisal proceedings involving public companies. Public companies can generally expect courts to give significant weight to objective market evidence when determining the fair value of dissenters' shares. Torys was counsel on the appeal.

What you need to know

The case: shareholders contest fair value. After an acquisition of InterOil by way of plan of arrangement, dissenting shareholders petitioned to have the court set the fair value of their InterOil shares. Relying on expert valuation evidence, the lower court held the fair value of the dissenters' shares was US$71.46 per share, despite a transaction price of US$49.98, the price paid by ExxonMobil Canada ULC (the acquirer). The ruling. The Court of Appeal ruled—on the basis of objective market evidence—that the original transaction price of US$49.98 was fair value. The Court noted that its earlier decision reversing the approval of a prior version of the arrangement did not mean that the original transaction price (which, with some modification, remained the transaction price for the subsequent arrangement) did not represent fair value. Impact on public companies. While the case involved a plan of arrangement, the Court of Appeal's decision has implications for appraisal proceedings involving public companies more generally, including amalgamations, continuations, and any other transaction in which dissent rights are available, either as of right or because they have been extended as part of an agreement. Transaction takeaways. In appraisal proceedings, public companies can continue to rely on objective market indicators of value when assessing the fair value of their shares, provided that the characteristics of a functioning market are present (including that the shares are widely held, a liquid market exists for the shares, the company has met its securities laws disclosure requirements, and any transactions are arm's length). Deal protection measures (such as break fees) that are in line with industry norms do not undermine the fairness of a negotiated price. When considering whether a transaction price represents fair value for the target shares, it is not necessary that a “public auction” has been held. Background

...