Shanda v. Maso – Privy Council confirms application of minority discount to minority bloc of public-company shares

Some minority shareholders of a Caymans NASDAQ-quoted company dissented when they were squeezed out in a going-private transaction for a modest (26%) premium over the trading price. The sole issue before the UK Privy Council was the correctness of their argument that their shares’ “fair value” should, consistently with the Delaware and Canadian corporate jurisprudence respecting compulsory minority buy-outs, be valued at a pro rata portion of the net enterprise value, rather than at a price that reflected a minority discount (which, if relevant, was 23%) to such value.

Lady Arden indicated that such jurisprudence should not be followed, in the absence of any indication that that was what was meant by “fair value.” She stated:

[I]t is a general principle of share valuation that (unless there is some indication to the contrary) the court should value the actual shareholding which the shareholder has to sell and not some hypothetical share. This is because in a merger, the offeror does not acquire control from any individual minority shareholder. Accordingly, in the absence of some indication to the contrary, or special circumstances, the minority shareholder’s shares should be valued as a minority shareholding and not on a pro rata basis.

This suggests that one should be cautious in considering the fair market value of a minority shareholding to equal a pro rata portion of enterprise value, without building in a minority discount.

Neal Armstrong. Summary of Shanda Games Ltd v Maso Capital Investments Ltd & Ors (Cayman Islands) [2020] UKPC 2 under General Concepts – FMV – shares.