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Christopher Harlowe

Christopher Harlowe

Partner | Cayman IslandsLondon

Do shareholders who voted in favour of the  merger have any remedy if the Cayman Court subsequently holds that the "fair" share price was higher than the deal price?

01 October 2018

The Shanda Games appraisal case, heard by the Grand Court in November 2016, determined that the fair value of the company's shares was substantially higher than the deal price. Can shareholders who accepted the deal price and who did not pursue appraisal rights reopen their acceptance to seek that higher fair value?

That question is now the subject of a fresh class action issued by a former shareholder against Shanda and some of its directors in the Southern District of New York.

The Plaintiff's broad allegation is one of misrepresentation: that as a result of the misleading information included by the company in the Proxy Statement, shareholders were induced to sell to their shares for the deal price which was subsequently held by the Cayman Court in the dissenters' appraisal action to be less than their fair value.

Although no similar claims have been brought in Cayman, there is no obvious principled reason why former shareholders couldn't accept the deal price but subsequently claim for losses suffered as a result of a misrepresentation made by the company to the shareholders to induce them to sell their shares at less than their full value.

The action would be made easier by the shareholders not having to rely on expert evidence to prove their loss and damage, but instead being able to rely on the Cayman Court's finding of the higher fair value of their shares.

We will continue to post updates on the New York claim as we become aware of them. If it succeeds, will the fear that a deal approved at the EGM could be reopened have a chilling effect on M & A activity or on Cayman appraisal actions – or will it force companies contemplating a merger or acquisition to ensure that the deal price would be justified as the fair value in a Cayman appraisal, in which case it will have served a useful broader economic purpose in improving minority shareholder protection?

We'll see.

 

Contact

Christopher Harlowe

Christopher Harlowe

Partner | Cayman IslandsLondon

About Mourant

Mourant is a law firm-led, professional services business with over 60 years' experience in the financial services sector. We advise on the laws of the British Virgin Islands, the Cayman Islands, Guernsey, Jersey and Luxembourg and provide specialist entity management, governance, regulatory and consulting services.

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