During 2016, shareholders in Cayman Islands companies often availed themselves of the Court procedure for determining the fair value of their shares. That trend is likely to continue into 2017. A substantial driver of this has been the perceived opportunity by value arbitrage investors looking to take advantage of the trend for US-listed, Cayman Islands incorporated, China companies going private – known as the “march back East”. A take private transaction involves a valuation by a Cayman Islands company of the fair value of its shares. Shareholder-investors objecting to the company-determined value are keeping the Cayman Islands Court increasing busy.
Section 238 of the Companies Law provides a mechanism by which a shareholder may refuse to accept the consideration offered to the shareholder for his shares in a merger or consolidation of the company, and instead have the Cayman Islands Court determine the fair value of those shares.
There were nine shareholder valuation proceedings commenced in the Cayman Islands in 2016 – a significant increase from 2014 and 2015, which saw one proceeding commenced in each year. Of these nine proceedings, five have the same dissenting shareholder group and eight have a dissenting shareholder group that are reported to be event-driven hedge funds (i.e. the fund invests in securities affected by corporate events such as mergers) – these are ‘professional’ dissenting shareholders. Of the nine companies whose shares are subject to a fair value determination, eight conduct their operations through subsidiaries in the People’s Republic of China (the other conducts a large onshore drilling operation in Russia). The majority of these mergers or consolidations have been US$1-2 billion value transactions, and in one case US$9.3 billion. Each was reportedly initiated by a management consortium in conjunction with sponsors or affiliates, many of whom were existing shareholders, looking to take the company private.
Harneys has acted in the vast majority of the cases filed to date, amassing world class expertise and, consistent with its dominating Asia-Pacific footprint, acting for the China corporates.