Jersey: Judicial Determinations Of Fair Value In Cayman Mergers – An Update

Last Updated: 12 January 2017
Article by Ray Ng, Oliver Payne and Edwin Gomez

Most Read Contributor in Jersey, March 2019

In the course of the last 24 months, a number of Cayman Islands companies with operations in the PRC and shares or ADRs traded on the US Exchanges have been the subject of 'take-private' transactions.  Some of these transactions have reportedly been fuelled by the prospect that these businesses may command a higher valuation in China's A-share IPO market. At the same time, there has been a corresponding increase in litigation by shareholders of such companies claiming to have received less than fair value for their shares. Such litigation has been brought in the Cayman courts under Part XVI of the Cayman Companies Law (Revised)(the "Law")(the "Dissent Regime").

The Dissent Regime came into force in 2009. However, it was not until 28 August 2015 that the meaning of fair value and the approach to appraising fair value were the subject of determination by the Grand Court of the Cayman Islands. The case was In the Matter of Integra Group, in which Jones J drew heavily from Delaware jurisprudence1 to arrive at his judgment.

Since that first judgment, several more cases are pending before the Grand Court, and amongst them, judgments are imminent in relation to Shanda Games and Homeinns Hotel Group. These may provide practitioners and investors with additional legal and practical guidance on the scope and operation of the Dissent Regime, and/or open new areas of controversy.

Vindicating the Right to Payment of 'Fair Value'

Contractual mergers and consolidations are required to be authorised by a special resolution of shareholders, i.e. the approval of at least two thirds of the shareholders entitled to vote in person (or such higher majority as may be specified in the company's articles of association).  They do not, as a matter of Cayman Islands law, require court approval.  For shareholders who object to the merger or consolidation but have been outvoted by the requisite majority, their remedy is to seek payment of the fair value of their shares pursuant to section 238 of the Law or to challenge the merger or consolidation as being void or unlawful.

The process for a shareholder in such circumstances to dissent and demand payment of fair value under the Law is subject to strict time limits.  It is therefore important that timely consideration is given to the conversion of ADRs into shares (where applicable), the provision of written notices of objection and notices of decisions to dissent2, the making of offers by the company, and, in the absence of agreement, the filing of proceedings in the Cayman Court. 

Determining Fair Value - the Cayman Court's Approach

In Integra the Cayman Court's decision was notable in the following respects:

    i.   it affirmed that assessing fair value is a fact-based assessment, requiring an element of judgment by the Court; 

   ii.   it held that in the context of the Dissent Regime, fair value typically means the economic benefit attaching to a shareholding were the business to be sold as a going concern in a hypothetical arm's-length transaction with the resulting common shareholders' equity value distributed amongst common shareholders on a pari passu basis without incorporating:

  1. minority discounts;
  2. non-controlling discounts;
  3. marketability and illiquid discounts.

   iii   it considered hindsight evidence to be generally not relevant (although there are limited exceptions); and

   iv.   it held that on the facts of the case, a fair rate of interest to be paid by the company was the mid-rate between a company's assumed return on cash and the rate at which it could borrow.

There remain however, areas which would benefit from further clarification.  These include:

   i.  Discovery

In any given case, there is a need for the court to consider all evidence that may be helpful.3 In Integra, the Cayman Court was of the view that the parties' experts are 'the best judge' of what information is relevant but offered no guidance on the scope of the parties' discovery obligations and entitlements. In In the Matter of Charm Communications Inc, unreported, 20 February 2015 (Mangatal J.) the Cayman Court made it clear that in the context of such proceedings, directions given in one case are not to be regarded as precedents. Consequently, the scope of discovery is likely to be the subject of detailed consideration and argument in every case.

    ii.  Approval by majority of minority

Proxy statements issued in relation to many 'take-private' transactions reveal that buyer groups are now considering mergers or consolidations which are conditional upon, inter alia, the approval of the majority of the minority shareholders (i.e. those unaffiliated with the company). The existence of such approval is intended to demonstrate that the 'take-private' transaction was fair to minority shareholders. However, with the increasing practice of appraisal arbitrage and the risk that arbitrageurs may, following the announcement of a 'take-private' transaction, amass sufficient shares to block the required shareholder vote, many buyer groups often disregard this condition. Whilst the absence of a majority of the minority vote (where such has been stipulated as a condition) is not necessarily indicative that the final merger price was unfair, it is often a factor relied on by dissenting shareholders. Integra was not a case in which the merger was conditional upon the approval of a majority of the minority shareholders, so it remains to be seen whether a merger approved on that basis will influence the valuation approach the Cayman Court will take in its determination of a company's fair value.

     iii. Valuation methodology and weighting

The Law does not prescribe any particular valuation methodology. The Cayman Court has noted that absent such provision, fair value may be proved by any techniques or methods which are generally acceptable in the financial community and are otherwise admissible in court. In Integra, three possible valuation approaches were identified:

  1. the Market Approach which encompasses a valuation based upon trading prices of (a) the company’s own shares; or (b) shares in comparable companies operating in the same market sector (described in Integra as 'the Guideline Public Company Method');
  2. the Income Approach which includes the discounted cash flow method (DCF); and
  3. the Cost (or asset-based) Approach. 

In Integra, the approach of the dissenting shareholders' expert was favoured by the Court and a 75%/25% weighting was applied to the DCF method and the 'Guideline Public Company' method respectively. Given the fact-sensitive nature of each valuation, it is difficult to extrapolate from any particular reported decision what valuation approach might be taken by the Cayman Court in other cases.

A word on Merger Consideration

Historically, the Court of Chancery of the State of Delaware (the “Delaware Court”) had looked to the final merger consideration as the best evidence of ‘fair value’ when the transaction had "resulted from a competitive and fair auction, which followed a more-than adequate sales process and involved broad dissemination of confidential information to a large number of prospective buyers"4.

For example, in Huff Fund Investment Partnership v. CKx, Inc., Unreported in A.3d (2013) the Delaware Court relied on the financial merger consideration as the best and most reliable indication of the company's value and was of the view that projections created for litigation or for obtaining benefits outside the company's ordinary course of business were unreliable for the purposes of the valuation that it had to undertake. 

However, in some recent decisions after Integra, the Delaware Courts have rejected the final merger consideration as the best evidence of a company’s fair value – at least where there has not been a competitive and fair auction conducted in the circumstances contemplated in Huff.  For example, in Re: Appraisal of Dell, Inc. (Del, May 11, 2016), the Delaware Court made it clear that ‘a claim that the bargained-for price in an MBO represents fair value should be evaluated with greater thoroughness and care than, at the other end of the spectrum, a transaction with a strategic buyer in which management will not be retained’.  Using the DCF analysis, the Delaware Court rejected the final merger consideration as evidence of fair value on the grounds that, inter alia, the sale price was influenced by a leveraged buyout pricing model; there was a significant ‘valuation gap’ between Dell’s long term value and the market’s perception; and there was a lack of meaningful price competition at the pre-signing stage because the independent committee had not contacted any strategic buyers and had only negotiated with the MBO group5.


The prospect of higher valuations in the PRC markets may continue to fuel the number of 'take-private' transactions for some time to come, with a concomitant increase in the number of claims under the Dissent Regime.  Although Integra has provided welcome guidance on the Cayman Court's approach to the determination of a company's fair value under the Dissent Regime, uncertainty remains as to how the Cayman Court will address issues of disclosure. It also remains to be seen whether any additional factors will be identified as criteria for the approach to valuation, while predicting which of two or more valuation methods will prevail in any given case is still very much an inexact science. The recent judicial shift in Delaware away from the final merger consideration as evidence of a company's fair value and towards more rigorous scrutiny of leveraged MBOs may be a signpost for the Cayman Courts to follow suit. As things stand, it would seem that the best prospect of a company being able to persuade the Court that the final merger consideration represents fair value is by ensuring that the merger is the product of a competitive and fair auction, and perhaps, to also make the merger conditional upon the approval of a majority of the minority shareholders.


1. In the British Virgin Islands, the BVI Business Companies Act, 2004 (the “BCA”) provides a similar mechanism for shareholders to claim payment of the ‘fair value’ of their shares; where ‘fair value’ of the shares cannot be agreed between the company and the dissenting shareholder. Section 179 of the BCA provides that the company and the dissenting shareholder must each appoint an independent appraiser who will jointly appoint a third appraiser; and together, the three will determine the fair value of the dissenting shareholder’s shares. Further, the meaning of fair value and the approach to valuation under the BVI regime were the subject of judicial determination by Bannister J in HRH Prince Faisal bin Khalid bin Abdul Aziz al Saud v PIA Investments Limited, 25 July 2011.

2. A shareholder who dissents must do so in respect of all of the shares that he holds in the relevant constituent company.

3. This is also the position in Canada: Cyprus Anvil Mining Corp v. Dickson (1986) 8 B.C.L.R 145.

4. Union Illinois 1995 Inv. Ltd. P'ship v. Union Fin. Grp., Ltd., 847 A.2d 340, 358 (Del. Ch. 2004) (appraising company at the merger price minus synergies);

5. The fact that Dell’s independent committee reached out to 60 parties over a 45-day go-shop period at the post-signing stage did not alter the Delaware Court’s conclusion that the final merger price had been undermined.  The Delaware Court was of the view that MBO go-shops rarely produce topping bids and the fact that Dell received two bids at the post-signing stage suggested that the final merger price (reflecting the higher of the two bids) was below fair value.  A similar approach was taken in John Douglas Dunmire et al –v- Farmers & Merchants Bancorp of Western Pennsylvania (Del. Ch. November 10, 2016).

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions