In a recent landmark decision involving Trina Solar, dissenting shareholders triumphed on appeal, setting a crucial precedent for businesses engaged in legal proceedings related to mergers. This event has underscored the necessity of a robust merger process and how important it is for a company to ensure all pertinent information is available in appraisal proceedings. The Trina Solar case has also ignited a debate on using discounted cash flows in establishing share value.
This verdict comes as a wake-up call, stressing the core principles to follow during a merger negotiation and subsequently, while dealing with dissenting shareholders. The key takeaway is to ensure full transparency and absolute disclosure of all crucial details pertinent to the company’s valuation.
This decision reiterates the fact that the company or the entity going through a merger or acquisition has an onus – the burden of proof in a way – to lay bare all the salient information not just during the negotiation and transaction phase, but also in any appraisal proceedings that might follow due to dissenting shareholders. In the absence of such fulsome disclosure, courts might not consider the merger price as the ‘fair value’ under section 238 of the Companies Law of the Cayman Islands, which could peter out unfavorably for the entity undergoing the merger.
Equally important is the discourse on the usage of discounted cash flows (DCF). As observed in the said case, DCF can create complications when deployed to determine ‘fair value’ in the absence of a robust financial input.
For any corporation or law professional working on mergers and acquisitions, the Trina Solar case sets an important legal precedent and serves as a lesson to ensure a robust merger process and fair disclosure of information.