The fair value assessment of the shares of an early-stage
public oil sands company was at stake in a long-awaited
decision of the Court of Queen's Bench of Alberta in
Deer Creek Energy Limited v. Paulson & Co.,
Inc. et al. Three groups of shareholders holding
approximately 8.8 million shares, or 16.2 per cent of the Deer
Creek shares, had exercised their rights to dissent.
The transaction that gave rise to dissenting shareholder
rights was the amalgamation of Deer Creek with a newly
incorporated company under the Alberta Business
Corporations Act (ABCA) in a second-stage transaction a
few months after a takeover bid. The bidder, Total E&P
Canada Ltd. (Total), acquired 82.4 per cent of the Deer Creek
shares through the bid at $31 per share. The bid was commenced
in August 2005 and completed on October 11, 2005. In the
second-stage amalgamation transaction, completed on December
Total acquired all of the remaining shares. Deer Creek
submitted that the shares have a fair value of $31 per share as
at the valuation date of December 9, 2005, or roughly $270
million. The dissenting shareholders submitted that their
shares should be valued at between $110 per share and $200 per
share, for a total of approximately $1 billion.
At issue were (i) the appropriate valuation methodology,
(ii) the adequacy of the process undertaken by the board of
Deer Creek in testing the price offered against the value of
the company, (iii) the role of hindsight in fair value
assessments, (iv) the implications of certain presentations
that had been made to investors, and (v) the question of
whether synergies and benefits that may have arisen from the
acquisition of a control position by Total in the takeover bid
either affected the fair value of Deer Creek or should enure to
the benefit of the dissenting shareholders.
The trial judge found that the fair value of the Deer Creek
shares as of the valuation date was $31 per share. The court
concluded that, in this case, the appropriate valuation
technique was the market value approach as suggested by the
expert valuation witness called by Deer Creek. That value was
confirmed by the net asset value approach as calculated by that
witness. The trial judge preferred this opinion over the
discounted cash flow approach taken by the expert valuation
witness called by the dissenting shareholders.
The trial judge noted that the determination of fair value
pursuant to the statutory right set out in the ABCA and similar
legislation is highly fact-specific. Citing precedent case law,
the trial judge observed that the court must consider all the
evidence that might be helpful, as well as such methods of
determining value that might provide guidance — but
that in the end it is up to the court to exercise judgment to
determine fair value.
The court commented that generally, neither the parties nor
the court may rely on hindsight evidence. Events that were not
known as of the valuation date or that occurred afterwards are
not relevant to determination of fair value on the valuation
The trial judge found that the Deer Creek board followed a
more than adequate process to market the company and to test
the market, and that it was neither outmanoeuvred nor
out-negotiated. The court concluded that the results of the
marketing efforts were relevant and persuasive evidence of fair
The court dismissed submissions by the dissenting
shareholders that investor presentations by Deer Creek were
indicative of the fair value. The trial judge noted that the
investor presentations must be viewed in context and were
expressed to be subject to risks, assumptions, uncertainties
On the final question in issue, the court found that the $31
price, established through negotiation and a counter-bid of a
major competitor of Total, captured some (if not all) of the
additional benefits attributable to Total acquiring control of
Deer Creek. The trial judge was not satisfied that either
fairness or policy considerations should lead her to find that
the dissenting shareholders are entitled to any additional
benefit that might have accrued in the brief period between the
date the Total takeover bid closed and the valuation date. She
was also not satisfied that the Deer Creek shares had increased
in value during that period.
McCarthy Tétrault acted for one of the dissenting
shareholder groups at the trial. All of the dissenting
shareholders have filed appeals of the entire judgment.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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