Cayman Islands: Reliance On The Merger Price In Cayman Appraisal Actions – Appleby

First published by South Square Digest, July 2023.


In recent years, much use has been made of the regime which the
Cayman Islands’ Companies Act provides to facilitate corporate
mergers. Often the purpose of the merger is to cash out minority
shareholders, commonly to enable a publicly-listed company to be
taken private. Where minority shareholders are faced with that
prospect, section 238 of the Act entitles them to dissent from the
merger and to pursue proceedings (an “appraisal
“) to have the fair value of their shares
determined and awarded by the Court.

There have been a large number of cases where minority
shareholders have considered the price offered for their shares
(the “merger price“) to be materially
unfair, and where the Cayman courts have dealt with appraisal
actions. Seven have proceeded to trial on the question of fair
value,1 appeals against two fair value orders have been
decided by the Cayman Islands Court of Appeal
(“CICA“),2 and one has been
the subject of a further decision of the Privy

In some of these cases the Court has been invited to place
reliance on the merger price (also known as the “transaction
price”) either as a measure of fair value, or as a cross-check
against other valuation methods. This article examines the bases on
which the merger price has either been given weight in the
determination of fair value or held to be unreliable. We start by
providing a brief overview of the approach to evidencing fair
value, including the question of the burden of proof. We then
analyse four decisions where the merger price was relied upon,
starting with Re Nord Anglia Education Inc
(unrep. 17 March 2020) and Re FGL Holdings (unrep. 20
September 2022), before moving to the recent judgments Re Trina
Solar Limited
(unrep. 4 May 2023), and Re iKang Healthcare
(unrep. 21 June 2023).

Evidencing fair value

In the CICA’s judgment in Trina Solar, Birt JA
cited with approval Segal J’s two-fold exposition at first
instance of the meaning of “fair value”.4
First, the Court is seeking to assess the monetary amount which in
the circumstances represents its best estimate of “the
true worth of the dissenting shareholders’ shares (true worth
meaning the actual value to the shareholder of the financial
benefits derived and available to him from his shares and by being
a shareholder)”. Second, the reference to “fair”
requires that the method of assessment is fair to the dissenting
shareholder by “ensuring that all relevant facts and matters
are considered and that the sums selected properly reflects the
true monetary worth to the shareholder of what he has lost,
undistorted by the limitations and flaws of particular valuation
methodologies and fairly balancing, where appropriate, the
competing, reasonably reliable alternative approaches to valuation
relied on by the parties”.

As this dicta highlights, parties to appraisal proceedings often
advance different methodologies to establish the fair value of the
shares at the relevant valuation date. In addition to the merger
price, these are principally: (a) adjusted trading or market price,
(b) comparable companies’ analysis, and (c) discounted cashflow
forecast (“DCF“) valuation. Recent case
law has confirmed methodologies can be “blended”, by
applying a percentage weighting to two or more of the valuations to
produce a composite sum that reflects the fair value.

As Parker J stated in FGL Holdings at [269], Cayman law
creates no presumption as to which methodology will be suitable in
any particular appraisal. Accordingly, contested proceedings
involve the parties adducing complex and competing expert valuation
evidence. In analysing the expert (and factual) evidence, the Court
is required to apply the principle that each party bears the burden
of proving its case on fair value. As Segal J recently explained in
iKang Healthcare at [36]:

“The Court will consider detailed expert valuation
evidence in making its determination of fair value. In
assessing such expert evidence, as I explained in Re Shanda Games
at [84] (unrep. 25 April 2017) (Shanda GC) “…the Court
should approach the disputed issues on the basis that it is for
[the Company] and the Dissenting Shareholders to establish, on the
balance of probabilities, that the valuations their experts have
presented on the issue in question are reasonable and
. If only one is reasonable and reliable then the
Court should (absent some other reason for not doing so) follow and
apply that approach. If both appear to be reasonable and reliable,
the Court must decide which is to be preferred. If neither is
reasonable and reliable, the Court must make its own determination.
The Court, in a petition under section 238, is not able simply to
treat fair value as not being established…”

In the same judgment, Segal J made clear that this approach
extends well beyond asking whether an expert has, on the factual
evidence available, essentially done the maths correctly: the
reasonableness and reliability of any valuation will largely depend
on the availability of the factual evidence on which it needs to be
based. At [35], the Judge added:

“Where a company contends that the merger consideration
is indicative of fair value sufficient evidence of “market
efficiency, fair play, low barriers to entry, outreach to all
logical buyers and a well-designed sales process” must be
adduced (see Trina at [156]). Where relevant documentary or witness
evidence is not available, the Company “risks failing to
satisfy the evidential burden” in respect of that aspect of
its case on fair value” (see Trina at [156]). Where a company
contends that the market trading price is indicative of fair value,
it needs to demonstrate both that there was no material non-public
information and that the market for the relevant shares at the
relevant time was semi-strong efficient (see Trina at

Re Nord Anglia Education Inc.

Nord Anglia was the first case in which substantial
reliance was placed on the merger price in the determination of
fair value, with the Court giving it a 60% weighting, and the
remaining 40% given to a DCF analysis.

The company contended that the merger price was the product of a
genuinely arm’s length and fair process which generated the
highest price available in the market. This position was challenged
by dissenting minority shareholders inter alia on the
bases that investment funds managed by Baring Private Equity Asia
were on both sides of the transaction and that the sale process had
been designed to dissuade interested third parties from

Kawaley J referred to the Delaware Supreme Court’s decision
in Dell lnc v. Magnetar Global Event Driven Master Fund
177A.3d I (2017) (“Dell“),
where Valihura J warned that in cases where there has been
a robust sale process involving willing
buyers with thorough information and the time to make a bid…the
Court of Chancery should be chary about imposing the hazards that
always come when a law-trained judge is forced to make a point
estimate of fair value based on widely divergent partisan expert

On the facts, Kawaley J considered that there had been an
arm’s length transaction but that it was not robust in the
sense described in Dell. Nonetheless the Judge decided
that reliance could be placed upon the merger price. He observed
that Baring had a fiduciary duty to the beneficial owners of the
selling funds to maximise the sale price (and it is implicit that
no breach of fiduciary duty had been established).5 The
Judge was also satisfied that there was no significant overlap of
beneficial interests in the funds on each side of the transaction,
and that the potential conflict of interest by virtue of Baring
being on both sides of the transaction had been addressed through
the establishment of a special committee of the company’s board
of directors. The Judge further observed that the merger price had
been approved by that special committee based on credible
independent financial advice, and was higher than any price at
which the shares had traded in the preceding year. Turning to the
robustness of the sale process, the Judge found that there was at
least some attempt to find other bidders and none came forward in a
serious way, and he considered that there was no credible evidence
that any seriously interested bidders willing to pay a
substantially higher price had been rebuffed (including because a
dissenter which had been a longstanding shareholder of the company
had declined to make a topping bid).

The Court did, however, refer to numerous factors which might
have been taken to undermine the reliability of the merger price as
a measure of fair value. These included that the selling funds were
under the control of a Baring entity which held sufficient voting
power to approve the merger on its own and which had already agreed
to sell to the affiliated bidder. The Baring-owned controlling
shareholder had also obtained a “force the vote” clause
in the merger agreement, entitling it to require an extraordinary
general meeting to vote on the proposed merger even if the board
changed its recommendation regarding the merger, save in very
limited circumstances. The buying side also had unlimited matching
rights under the merger agreement, and were thus entitled
repeatedly to outbid any other superior bidder for the company; the
largest single investor on the buying side was admittedly a client
of Baring; and Baring personnel who generally worked as part of the
same team were on both sides of the negotiating table. The go-shop
period, throughout which the fairness advisor was expected to
solicit third-party interest in acquiring the company, was also
limited to a brief 30 days, and the go-shop mechanism made it
difficult for competing bids to be made. The Court further
recognised that any potential third-party bidder would have been at
an informational disadvantage to the buying side.

Kawaley J ultimately acknowledged that a number of those factors
might have discouraged potential third-party bidders, but
considered that any seriously interested party would nonetheless
have come forward, thus disregarding the potential effect of the
winner’s curse. Treating the merger price as the starting
point, as already stated, the Judge decided to give it more weight
at 60%, against 40% for the DCF valuation advanced by one of the

Nord Anglia was cited by the CICA in Trina
without apparent criticism. However, in light of their
judgment as to the importance of a robust sales process to justify
reliance on the merger price, and the decision in iKang
(both discussed below), we question whether a case on similar facts
would now be decided in the same way.

Re FGL Holdings

In Re FGL Holdings the Court determined that the merger
price equated to the fair value of the shares, and thus declined to
give weight to other valuation methodologies put forward in the
expert evidence.6 Notably, however, the facts of that
case were strikingly different from almost all other appraisal
actions which have been commenced in the Cayman courts to date,
which typically arise from take-private transactions driven by a
controlling shareholder which can approve the merger on its own and
is a member of the buyer group acquiring the business.

FGL was a US insurance company which was the subject of an
unsolicited bid by another US insurance business (called FNF) which
had been one of its minority shareholders (with 17% voting power)
for the few years preceding the transaction.

Parker J acknowledged that fair value and merger price are not
the same. Nonetheless, he held (in effect echoing the dicta in
Dell cited above) that merger price can be evidence of
fair value “where the transaction process was properly
conducted so as to ensure that the market was adequately tested and
there is sufficient evidence that market conditions were such as to
facilitate an arm’s length transaction with all potentially
interested parties
“.7 Furthermore, applying
Segal J’s dicta at first instance in Trina Solar, he
cited the need for sufficient evidence of “market
efficiency, fair play, low barriers to entry, outreach to all
logical buyers’ and a well-designed sales process
The Judge added that the precise weight to be given to the merger
price depended upon the assessment of the process and whether it
achieved these objectives, as well as the reliability of other

On the evidence, Parker J concluded that the merger price
provided a sound indicator of fair value because the sales process
was well designed, at arm’s length and represented a
transaction between a willing buyer and seller.

More specifically, the proposed merger was not a management or
controlling shareholder buyout (FNF having been incapable of
forcing it through on its own), and it received an overwhelming
level of shareholder approval, by more than 99% of the shareholders
unaffiliated with FNF which were present and voting (being 78% of
all unaffiliated shareholders). In addition, the company’s
co-chairman, who led negotiations on behalf of the special
committee, was best placed to pursue the best price that could be
obtained, and his interests were substantially aligned with those
of the unaffiliated minority shareholders by virtue of the
relatively substantial minority shareholding in FGL which he too
would be selling in the transaction. Furthermore, FNF had confirmed
that it was also willing to sell its minority shareholding in the
company if a superior bid emerged, and the go-shop process was
sufficiently open, notwithstanding that only one potential acquirer
(a competitor of the company) came forward, and entered into an NDA
and then failed to put forward any credible indicative bid.

In addition to those facts relating to the merger process
itself, it is apparent from the judgment that little effort was
made to quantify the value of the synergies arising from the
transaction, which would in principle fall to be excluded from an
award of fair value.8 Had there been engagement with
that issue, the Court may well have concluded that the merger
consideration actually somewhat exceeded the fair value of the
shares. Furthermore, no reliable income-based valuation was put
before the Court, and the market trading price had also been
rendered wholly unreliable because of the impact of the COVID-19
pandemic on the market at the relevant time,9 so the
Court was unable to weigh either of those possible indicators of
fair value in the balance.

The decision in FGL Holdings to rely entirely on the
merger price to ascertain fair value remains unusual, though it is
an unsurprising conclusion on the facts.

Re Trina Solar Limited (CICA)

In Trina Solar, when determining fair value at first
instance, Segal J had given the merger price a 45% weighting, with
30% being given to the adjusted trading price of the shares, and
25% to a DCF valuation. The dissenting shareholders appealed
against various aspects of the first instance determination,
including the decision to place any weight on the merger price, a
position which the CICA ultimately accepted.

In the CICA’s judgment at [139], Birt JA (with whom Beatson
and Field JJA agreed) cited with approval the summary by the
Delaware Court of Chancery in Re Solera Holdings Inc of
the features which ordinarily justify reliance on the merger

“…deal price is “the best evidence of fair
value” when there was an “open process,” meaning
that the process is characterised by “objective indicia of
reliability.” Such “indicia” include but, consistent
with the mandate of the appraisal statute to consider “all
relevant factors,” are not limited to:

  • “[R]obust public information,” comprised of the
    stock price of a company with “a deep base of public
    shareholders, and highly active trading,” and the views of
    “equity analysts, equity buyers, debt analysts, debt providers
    and others.”

  • “[E]asy access to deeper, non-public information”
    where there is no discrimination between potential buyers and
    cooperation from management helps address any information
    asymmetries between potential buyers.

  • “[M]any parties with an incentive to make a profit had
    a chance to bid,” meaning that there was a “robust market
    check” with “outreach to all logical buyers” and a
    go-shop characterised by “low barriers to entry” such
    that there is a realistic possibility of a topping bid.

  • [A] special committee “composed of independent,
    experienced directors and armed with that (sic) power to say
    ‘no’,” which is advised by competent legal and
    financial advisors.”

However, Birt JA rejected the submission that no or minimal
weight must be given to a merger price which is the product of a
process which failed to exhibit all such features. He explained
(agreeing with the trial Judge) that: “The mere fact that
there are flaws in the deal process does not of itself mean that
the merger price cannot be given weight. It all depends on the
gravity and nature of the flaws, although clearly the existence of
any flaws raises a serious issue as to whether weight can still be
placed on the merger price.

As already noted, the CICA cited the decision in Nord
as an example of a sale process, although at arm’s
length, which was not as robust as it might have been but where the
merger price still provided a reasonable indicator of fair value.
In contrast, if the breaches are substantial, the merger price is
unlikely to be a reliable indicator of fair value, and accordingly
little or no weight should be given to it.

On the facts, the gravity, nature and indeed the number of the
flaws in the Trina Solar merger process were significant. The CICA
held that it was not reasonably open to the trial Judge to give any
weight to the merger price in the determination of fair value,
including in light of the defects which the Judge himself had found
in the merger process.12 Birt JA referred to various
aspects in the merger process which undermined the Judge’s
conclusion, including that:

  • The company failed to provide a witness who could explain the
    actions of the special committee. The committee member who gave
    evidence at trial had been an unsatisfactory witness, for example,
    he could not explain satisfactorily why the committee had
    positively decided to exclude the company’s four largest main
    competitors from the market check.

  • Very few documents in relation to the sale process were
    available, with significant gaps in the information needed to
    explain the actions of the special committee, for example as to
    their selection of potential bidders for the market check or why
    the company’s main competitors were not included.

  • There were serious defects in the market check carried out by
    the special committee. Although the Judge did not conclude that the
    committee’s exclusion of the company’s major competitors
    was deliberate, Birt JA stated that it was the “effect of the
    decision…which is important …[which] would be to reduce the
    chances of an alternative bid. The Special Committee clearly failed
    the requirement in Dell (as adopted by the judge) that there be
    ‘outreach to all logical buyers'”.

  • The company failed to put the various potential bidders in
    touch with each other, despite a specific request from one
    potential bidder interested in forming a consortium. This had the
    effect of reducing the chances of a competing bid. In addition, the
    NDA was so tight it prevented any interested party from making a
    bid unless invited to do so by the special committee.

  • The Judge had accepted that the influence and position of the
    chairman in having dual roles in both the company and the buyer
    group created a material risk that the merger process would fail to
    produce an independent competing bid. Birt JA stated that the
    important point was this material risk existed, which was not
    addressed by the special committee, and was clearly relevant to
    whether weight could be placed on the merger price.

  • The connections between the special committee members and the
    chairman raised concerns about their independence. Referring to the
    dicta from Solera quoted above, Birt JA said that “it is
    an important indicia of reliability that a special committee be
    composed of independent experienced directors
    “. On the
    Judge’s own findings there were concerns about this

  • Finally, Birt JA considered the dissenting shareholders’
    criticisms of the fairness opinion on which the special committee
    had relied. He observed that the fairness advisor had, without
    explanation, taken a cost of debt figure of 13%, which was very
    high when compared to the two experts’ figures of 4.9% and
    5.5%. Had the fairness advisor used a figure of 4.9% this would
    have yielded a valuation that was more than double the merger
    price. This was therefore a significant error. Birt JA concluded it
    was another matter which questioned the reliability of using the
    merger price, given the likelihood of some shareholders voting
    differently if the fairness opinion had reflected a justifiable
    cost of debt figure and therefore produced a DCF valuation well in
    excess of the merger price.

The CICA criticised the Judge for effectively shifting the
burden on to the dissenting shareholders, contrary to the
principles summarised at the start of this article. In

  • On the fairness opinion, it was the company that was seeking to
    rely upon the opinion to support the merger price as indicating
    fair value. It therefore had the burden of producing any necessary
    evidence in support of the fairness opinion.

  • On the documentary evidence to explain the actions of the
    special committee, the correct target for criticism and for the
    potential drawing of adverse inferences was the company, not the
    dissenting shareholders.

  • On the market check carried out by the special committee, it
    was for the company to show that this was adequate to ensure all
    potential bidders had been approached, but the Judge had in effect
    placed the burden on the dissenting shareholders to show that
    potential bidders were prevented from coming forward.

Given the preponderance of factors which demonstrated the
unreliability of the merger price, Birt JA held that no reliance at
all could safely be placed on the merger price. It bears noting
that this was a case where the merger had been approved by 97.8% of
the shares voted or deemed to have been voted in favour.

Having made clear that “heightened scrutiny
is required where the merger transaction is effectively a
management buyout, Birt JA concluded by emphasising the protections
developed in Delaware jurisprudence and adopted in the Cayman
Islands to provide comfort that the merger price can be probative
of fair value.13 The importance of this point was
underscored by his warning that “if despite the
deficiencies identified and the failure of the Company to engage
properly in the process by producing suitable evidence in the form
of witnesses and documents, weight can still be placed on the
Merger Price, there is a substantial risk that companies in future
will behave in a similar manner and not be open and transparent
about all relevant evidence

Re iKang Healthcare

The judgment in Re iKang Healthcare was delivered
shortly after the judgment in the Trina Solar appeal. This
was not a case in which either expert contended that the Court
should give weight to the merger price, but the company’s
expert sought to put it forward as a cross-check for the valuation
methodologies on which he did rely, effectively inviting the Court
to regard it as a ceiling on fair value. Segal J rejected that
proposition, finding that the merger price did not assist in
reaching a fair value determination in this case.

The Judge did not accept the company’s argument that the
merger price was insufficiently reliable to be given any
independent weight in the fair value determination, but was
sufficiently reliable to be considered when deciding between other
competing valuations and determining fair value in light of them.
Fundamentally, if the merger price could not properly be given
weight in determining fair value, then neither could it serve as a
useful cross-check of other valuations.

In any event, the Judge preferred the dissenting
shareholders’ expert evidence on this issue, finding inter
that the chairman’s ability to veto any competing
transaction, together with his significant informational advantage,
created a fundamental (and structural) difficulty for the merger
process. In particular, the market checks and the process as a
whole were limited. Further, the chairman showed no signs that he
was prepared to “release his grip on [the
, and thus there was never a realistic prospect
of an outright buyer being found, such that the exercise was
confined to seeking out new partners for the chairman (and his
syndicate). Moreover, a poison pill Rights Agreement which had been
implemented reinforced management’s and the chairman’s
control over the merger process. The Judge considered that those
circumstances had “a substantial chilling and complicating
effect that reduced the pool of interested parties
“, gave
ultimate control of the process to the chairman, and resulted in a
price (paid by his new partners) that was likely to be below what
would be paid by an arm’s length buyer in a competitive bidding

Having reminded himself of the evidential burden, Segal J held
that the company had failed, without adequate explanation, to
secure and produce important documentary evidence from its special
committee’s fairness advisor regarding its work in relation to
the market check process. This further weakened its case for
(indirect) reliance on the merger price in determining fair value.
The Judge proceeded to warn at [474] that:

in future cases companies in section 238 proceedings
should be prepared to make available a proper documentary record
relating to the work of financial advisers to a special committee
and as to the conduct of a market-check and sales process and need
properly to justify why documents have not been retained or are not


The CICA in Trina Solar and the Grand Court in
iKang Healthcare have reaffirmed the principle as to the
burden of proof in Cayman appraisal actions, and the evidence which
companies involved in such actions will need to adduce where they
seek to contend that reliance should be placed upon the merger
price as an indicator of fair value.

The CICA’s decision in Trina Solar is also notable
for emphasising the principles from the Delaware jurisprudence
relating to a robust sales process, both to justify weight being
placed on the merger price, and to prevent abuse of the statutory
merger regime, not least where it is being used to facilitate
management or controlling shareholder buyouts.

These judgments should focus the minds of those involved in such
merger processes, since it is likely that companies involved in
appraisal actions will need to take more of an “open
book” approach to documentary disclosure and proffering
witness evidence in respect of the process which led to the
relevant merger, in addition to that which may have a bearing on
any other appropriate valuation methodology.

Barry Isaacs KC appeared in Re iKang Healthcare, instructed by
Andrew Jackson and colleagues from Appleby. Both acted for
different groups of dissenting shareholders in Re Nord Anglia.


1. These are Re Integra Group [2016] 1 CILR 192, Re
Shanda Games Ltd (unrep. 25 April 2017), Re Qunar Cayman Islands
Ltd [2019] 1 CILR 611, Re Nord Anglia Education Inc (unrep. 17
March 2020), Re Trina Solar Limited (unrep. 23 September 2020), Re
FGL Holdings (unrep. 20 September 2022) and Re iKang Healthcare
Group (unrep. 21 June 2023).

2. Re Shanda Games Ltd [2018] 1 CILR 352 and Re Trina
Solar Limited (unrep. 4 May 2023).

3. Re Shanda Games Ltd [2020] UKPC 2.

4. Segal J at first instance [91]; Birt JA on appeal at

5. Although note that an appraisal action is concerned
only with the issues of fair value and a fair rate of interest, not
claims for breaches of fiduciary or any other duty, which a
minority shareholder that has dissented from a merger will have
lost the right to pursue derivatively on behalf of the

6. Although it is possible that weight may have been
given to an appropriate income-based valuation methodology, if one
had been adduced. The dissenting shareholders’ expert in that
case had produced a dividend discount model, which the Court held
was unreliable for valuing an insurance business such as

7. See at [570]-[571].

8. Since fair value does not include any value
particularly arising from the accomplishment or expectation of the

9. Notwithstanding that the Court found that the market
for the company’s shares was informationally efficient, and
that there was no material non-public information.

10. [2018] WL 3625644 (30 July 2018), at p.17 per
Bouchard C.

11. See at [136], [142].

12. See at [146].

13. See at [140] and [148].

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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