Tim Derksen is a Director in the Financial Advisory practice at Deloitte – Cayman Islands and is the valuation leader for the Caribbean and Bermuda Countries. Tim provides litigation and dispute resolution support to funds, trusts and corporate entities across a variety of industries.
Do you think that the number of s238 dissenting shareholder claims has increased recently? Why do you think this is?
We actively track corporate announcements and there has been a marked increase in the number of merger and consolidation announcements taking advantage of s233 of the Cayman Islands Companies Law. Many of the recent announcements involve subsidiaries domiciled in Hong Kong or PRC where management believes the economics are now right to take the business private. An increase in s238 dissenting shareholder claims from shareholders unhappy with the offer price in my opinion is not only correlated with the higher volume of mergers and consolidations but also influenced in part by the first decision on the determination of fair value issued by the Grand Court of the Cayman Islands in regard to Integra. While each case is determined on the facts, in his decision, Justice Jones provided a road map for both the company and the dissenting shareholder to navigate the s238 process.
Do you have anY observations about the Dell case in the US?
The Dell case is interesting in that the Delaware Court moved away from a series of recent decisions using deal price to substantiate fair value in an appraisal action. However, we must be reminded that each case is fact dependent and in the Dell case, Vice Chancellor Laster found that the circumstances of the management led buy-out, limited pre-signing competition and reduced effectiveness of a go-shop period required extra scrutiny for the determination of fair value, ultimately placing emphasis on the intrinsic value of the company as determined by a discounted cash flow approach, resulting in the award of a higher value to dissenting shareholders.
Fact patterns in recent Cayman Islands merger and consolidation announcements appear strikingly similar to Dell and I expect the case will be of assistance to the Cayman Islands Grand Court when dealing with future Cayman Islands appraisal actions.
What sort of skills does a valuation expert have in valuing the fair value of shares following a merger?
Valuation is often a controversial and complex subject. It requires in-depth understanding of the market, the asset in question, the company and its competitors, financial and non-financial information, as well as factors such as the legal and regulatory environment. I believe valuation advice needs to properly blend analysis, experience and professional judgment.
Cayman Islands companies hold a vast array of assets covering a broad spectrum of industries and geographies. In s238 context, to act as valuation expert for the Grand Court, the valuator should not only possess the professional qualifications to opine, but also be able to demonstrate strong industry and geographical experience.