First published in the Cayman Financial Review
The Cayman Islands have recently seen a sharp increase in the use of their statutory merger regime to complete management buyouts (take-privates) of U.S.-listed Cayman companies whose businesses operate in mainland China. Because the merger regime permits a merger to be approved by, normally, a two-thirds majority of the shareholders, and the management of these companies usually hold at least that many shares and cast affirmative votes, the completion of such take-privates is often assured. The only choice with which a minority shareholder, or ADS holder, is typically left is whether to accept the price per share which management has offered, or to exercise its statutory right to dissent from the merger and demand to be paid fair value for its shares, which generally leads to an appraisal action.
A relatively large number of these take-private deals have led to appraisal rights actions, particularly since the Grand Court made its first determination of fair value in Re Integra Group in August 2015. The very recent fair value judgment in Re Shanda Games Limited, an appraisal action which arose out of such a take-private involving Shanda Games, is indicative of just how unfairly the target company’s management may be treating the minority shareholders in these deals. The Grand Court in that case determined fair value to be somewhat more than twice the merger price.
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