The Cayman Islands Grand Court has delivered another judgment on interim payments in fair value proceedings, providing helpful clarification on the operation of the interim payments regime in the context of fair value disputes.
Of particular interest in the Zhaopin Limited judgment is the fact that Justice McMillan – in reliance upon the decision of the Cayman Islands Court of Appeal in Shanda Games – applied a minority discount to the interim payment ordered, thus impacting future similar applications, which may be made by dissenters.
In this case, the dissenters applied for an interim payment in a sum equal to Zhaopin’s written statutory offer (which the dissenters had rejected) and argued the statutory offer comprised an admission on Zhaopin’s part that the merger price was fair.
After confirming that the Court had jurisdiction to award an interim payment and that it could accept Zhaopin’s admission of fair value as a finding of fact, the Court considered the Company’s many arguments resisting the application but only one argument found traction, namely that the Company would suffer hardship and prejudice as the Court could not conclude, with any confidence, that fair value equated to the merger consideration. This was due to the requirement in Shanda that a minority discount be applied to the merger consideration.
The Court accepted the argument that it would indeed be a hardship if the Company were required to pay a larger amount by way of interim payment than that which was ultimately determined at trial and, accordingly, the Court applied a 15% discount to the interim payment sought by the dissenters.
This decision will be welcome news to companies in the early stages of Cayman Islands fair value proceedings and illustrates the extent to which the Shanda decision has levelled the playing field. While the trend in fair value litigation has been to award dissenters more than merger price, the Delaware Courts have recently highlighted the continuing relevance of the “Deal price” and their willingness to award that sum where appropriate. This factor coupled with the Shanda minority discount means that Cayman Islands dissenters engaged in valuation arbitrage now run the real risk of nursing significant losses at both the interim payment stage and beyond.