Tuesday, December 11, 2007
Published in Magazine:
Thursday, May 01, 2008
In a decision released December 11, 2007, Mr. Justice Pitfield of the British Columbia Supreme Court released the first decision to undertake an analysis of the revised fair value provisions under the British Columbia Business Corporations Act, S.B.C. 2002, c. 57 (the “BCA”). In Grandison et al. v. NovaGold Resource Inc. (2007 BCSC 1780), the Court clarified the appropriate considerations to be taken into account in determining the “fair value” of shares in dissent proceedings.
Under all Canadian corporate statutes, the right of a shareholder to dissent generally arises in any situation that constitutes a fundamental corporate change, including resolutions altering the articles for the purpose of revising restrictions on the powers of the company or the business it is permitted to carry on and approving amalgamations and plans of arrangement.
In Grandison, NovaGold Resources Inc. (“NovaGold”) acquired Coast Mountain Power Corporation (“Coast”) by way of a combination agreement and a Plan of Arrangement. Coast was a publicly traded company on the TSX-Venture Exchange. NovaGold is a gold mining company and Coast was an independent power producer with three planned run-of-river hydroelectric projects at various stages of development. NovaGold's interest in Coast was primarily the transmission line that Coast proposed to build extending the province's hydroelectric grid north to supply power to NovaGold's proposed gold mine. Mr. Grandison was the CEO of Coast and one of its founding shareholders. He dissented from the Plan of Arrangement's effective offer price of $2.20 per share for his approximately 1.8 million Coast shares.
In the valuation proceedings before the Court, Mr. Grandison put forward expert evidence that the fair value of the Coast shares as of the day the Plan of Arrangement was approved was $6.14 to $8.51 a share or approximately $11 million to $15 million in total for his shares. Novagold's expert opined that the fair value of the shares was between $1.00 and $2.25 a share.
The Court expressed concern on placing too much weight on the trading price of the Coast shares on the exchange because they were thinly traded and likely reflected a minority discount. The Court was at least equally concerned, however, with determining fair value on the basis of the competing expert discounted cash flow (“DCF”) valuations. The Court noted that with such an early stage development company the DCF valuations relied on financial projections that were inherently rife with speculation and uncertainty and could not be determinative of value.
The Court held that the transaction price dissented from may, in the right circumstances, provide the best evidence of fair value. In the case of Coast, the Court held that NovaGold's offer was arms length, there was an independent committee that approved the offer, the majority of shareholders freely accepted the offer and there was no effective impediment to a competing offer. In these circumstances, the Court ruled that the transaction price should be the starting point in the analysis of fair value.
Taking the freely negotiated transaction price as a starting point and considering the other indices of value the Court concluded that the $2.20 offered by NovaGold was the fair value of the Coast shares as of the valuation date.
Joseph C. McArthur, Joanne Lysyk and Paul Heisler of the Vancouver office of Blake, Cassels & Graydon LLP represented Novagold, and Gary Letcher and Spencer May of Edwards, Kenny & Bray LLP represented the dissenting shareholder, Mr. Grandison.