Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Changyou (CYOU US): Short-Form Merger Dissent Now Permitted

IKang Healthcare (KANG US): Another Setback For Dissenters

Homecoming For Chinese Companies: Appraisal Rights & Fair Value

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Quiddity Advisors

Event-Driven

<p>On the 23 September, the Grand Court of Cayman handed down a <a href="https://www.judicial.ky/search_judgments/get.php?id=S0VUYmZHcGFoVVpWalVCNHJnZmQrQT09&amp;type=pdf&amp;ts=1602053133" target="_blank" rel="noopener">judgment</a> on the appraisal rights assessment for <a href="https://www.smartkarma.com/entities/trina-solar-ltd" target="_blank" data-smartkarma-citation="entities:686:1" rel="noopener">Trina Solar (TSL US)</a>. This is the fifth judgment pertaining to Section 238 of the <a href="https://www.cima.ky/upimages/commonfiles/CompaniesLaw2020Revision_1579811065.pdf" target="_blank" rel="noopener">Companies Law (2020 Revision)</a> to determine a fair value for dissenting shareholders. The other four were discussed in my early insight <em><a href="https://skr.ma/TDg1T" target="_blank" rel="noopener">Homecoming For Chinese Companies: Appraisal Rights &amp; Fair Value</a>.</em></p>
<h3>To Recap</h3>
<p>On the <a href="https://www.trinasolar.com/us/news/trina-solar-enters-definitive-agreement-going-private-transaction" target="_blank" rel="noopener">31 July 2016</a>, TSL entered a definitive agreement for a going private transaction with Fortune Solar, a buyer group which included Jifan Gao, TSL's chairman and CEO.  The merger price was US$11.60/ADS or US$0.232/share.</p>
<p>At an EGM on the 16 December 2016, TSL shareholders <a href="https://www.trinasolar.com/us/news/trina-solar-announces-shareholders-vote-approve-going-private-transaction" target="_blank" rel="noopener">approved</a> the merger, and it was completed on 13 March 2017.</p>
<p>Maso Capital and Blackwell dissented from the merger (Dissenting Shareholders) and a petition was heard between the 6 and 21 May 2019. Written closing submissions were filed on the 3 June 2019. </p>
<h3>Shanda Delays</h3>
<p>On the 12 March 2019, the Privy Council heard an appeal from the judgment of the Cayman Court by Maso Capital and <a href="https://www.smartkarma.com/entities/shanda-games-ltd-spons-adr" target="_blank" data-smartkarma-citation="entities:8686:1" rel="noopener">Shanda Games Ltd Spons Adr (GAME US)</a>. As that decision was pertinent to the TSL case, both TSL and Dissenting Shareholders agreed to delayed proceedings until the outcome of the appeal. The Privy Council advice was handed down on the <a href="https://www.jcpc.uk/cases/docs/jcpc-2018-0062-judgment.pdf" target="_blank" rel="noopener">27 January</a> this year. </p>
<h3>Valuations Proposed</h3>
<p>TSL's proposed valuation method was based on the price of shares bought and sold as at the EGM date; or the negotiated merger price. TSL argued that subsequent to the Shanda decision that the Court must determine fair value by reference to the price at which the relevant shares would be exchanged between a willing buyer and willing seller in an arms-length transaction based on publicly available information. </p>
<p>Dissenting Shareholders argued for a DCF methodology.</p>
<h3>The Decision And The Blended Assessment</h3>
<p>The judge rejected the Shanda decision as being overriding and conclusive, not least as it would make s.238 void. But that the reference to what is fair requires that all relevant facts and matters be considered and that the:</p>
<blockquote>
<p>... sum selected properly reflects the true monetary worth to the shareholder of what he has lost, undistorted by the limitation and flaws of particular valuation methodologies and fairly balancing, where appropriate, the competing, reasonably reliable alternative approaches to valuation relied on the parties.</p>
</blockquote>
<p>The Court concluded the fair value should be determined with reference to the merger price (45%), the adjusted market price (30%); and 25% to the DCF valuation.</p>
<p>Given the adjusted market price is below the merger price; and the input for the DCF calculations preferred by the judge was primarily provided by TSL's own expert, the final fair price (which was not detailed in the judgment) is expected to result in a marginal uplift (at best) over and above the merger price.</p>
<p>As always, more below the fold.</p>

On the 23 September, the Grand Court of Cayman handed down a judgment on the appraisal rights assessment for Trina Solar (TSL US). This is the fifth judgment pertaining to Section 238 of the Companies Law (2020 Revision) to determine a fair value for dissenting shareholders. The other four were discussed in my early insight Homecoming For Chinese Companies: Appraisal Rights &amp; Fair Value.
To Recap
On the 31 July 2016, TSL entered a definitive agreement for a going private transaction with Fortune Solar, a buyer group which included Jifan Gao, TSL's chairman and CEO.  The merger price was US$11.60/ADS or US$0.232/share.
At an EGM on the 16 December 2016, TSL shareholders approved the merger, and it was completed on 13 March 2017.
Maso Capital and Blackwell dissented from the merger (Dissenting Shareholders) and a petition was heard between the 6 and 21 May 2019. Written closing submissions were filed on the 3 June 2019. 
Shanda Delays
On the 12 March 2019, the Privy Council heard an appeal from the judgment of the Cayman Court by Maso Capital and Shanda Games Ltd Spons Adr (GAME US). As that decision was pertinent to the TSL case, both TSL and Dissenting Shareholders agreed to delayed proceedings until the outcome of the appeal. The Privy Council advice was handed down on the 27 January this year. 
Valuations Proposed
TSL's proposed valuation method was based on the price of shares bought and sold as at the EGM date; or the negotiated merger price. TSL argued that subsequent to the Shanda decision that the Court must determine fair value by reference to the price at which the relevant shares would be exchanged between a willing buyer and willing seller in an arms-length transaction based on publicly available information. 
Dissenting Shareholders argued for a DCF methodology.
The Decision And The Blended Assessment
The judge rejected the Shanda decision as being overriding and conclusive, not least as it would make s.238 void. But that the reference to what is fair requires that all relevant facts and matters be considered and that the:

... sum selected properly reflects the true monetary worth to the shareholder of what he has lost, undistorted by the limitation and flaws of particular valuation methodologies and fairly balancing, where appropriate, the competing, reasonably reliable alternative approaches to valuation relied on the parties.

The Court concluded the fair value should be determined with reference to the merger price (45%), the adjusted market price (30%); and 25% to the DCF valuation.
Given the adjusted market price is below the merger price; and the input for the DCF calculations preferred by the judge was primarily provided by TSL's own expert, the final fair price (which was not detailed in the judgment) is expected to result in a marginal uplift (at best) over and above the merger price.
As always, more below the fold.

Trina Solar: Appraisal Rights Judgment Another Setback for Dissenters