Successful defence of "fair value" claim
Macleod Dixon LLP has successfully defended a claim brought by an American hedge fund dissenting from an amalgamation transaction which formed the second stage of the acquisition of Deer Creek Energy Limited, an early stage oil sands company, by the Canadian subsidiary of French multinational Total S.A.
In a detailed 132-page judgment released on June 13, 2008, Madam Justice Barbara Romaine of the Alberta Court of Queen's Bench found that the fair value of Deer Creek's shares was $31 at the relevant Valuation Date. She dismissed claims put forward by Paulson & Co. Inc. and a number of other smaller shareholders that the shares were worth between $110 and $200 per share.
The litigation arose in the wake of a $25 per share takeover bid for Deer Creek by Total E&P Canada Ltd. in August, 2005, later increased in September to $31 per share to match a competing bid. Of Deer Creek's outstanding shares at the date of the takeover bid, 82.4% were tendered to the Total bid. However, Paulson began accumulating shares in the market upon the announcement of the offer and ultimately acquired nearly 8.5 million shares, roughly a 16% interest.
When Total proceeded with a second-stage amalgamation in order to complete its acquisition of 100% of Deer Creek's shares, it offered the other shareholders the same $31 per share at which the takeover bid had cleared the market. Paulson and a small number of individual shareholders decided to dissent and to assert that they were entitled to far in excess of $31 as the fair value of Deer Creek's shares.
Macleod Dixon LLP commenced proceedings on behalf of Deer Creek to determine the fair value of its shares in early 2006, and proceeded on an expedited basis to a four-week trial in mid-September of the same year. Extensive written arguments were submitted in December and January, 2007, with oral argument following on February 16, 2007.
The decision is an important one in terms of the guidance it provides on a number of issues relating to the determination of fair value in dissenting shareholder proceedings, particularly in the context of second-stage transactions typically utilized to complete the intended acquisition of 100% of the shares of the takeover target.
The Macleod Dixon team handling the litigation included Clarke Hunter Q.C., Glen Poelman, Steve Leitl, Lori Bevan, Andrea Sparkes and Scott Gordon, with securities law support from Bob Engbloom Q.C., who had earlier led the legal team on the takeover bid itself.
Please click here for a PDF version of the judgment.