Levesque, Hamilton, Beaupré

Appeal from a judgment of the Superior Court fixing the fair value of the shares under s. 190(15) of the Canada Business Corporations Act (R.S.C. 1985, c. C-44). Allowed in part.

In the context of a hostile take-over bid, the application was filed after certain shareholders exercised their right to dissent pursuant to s. 190 of the Canada Business Corporations Act. To determine the fair value of the shares, the trial judge used as a starting point the value of a bid competing with the accepted take-over bid ($1.40), to which he added $0.27 to account for synergies arising from the transaction and $0.40 representing the added value of a lucrative Hydro-Québec contract. The judge then subtracted $0.08 per share for environmental liabilities identified after the assets were taken over, for a final value of $1.99 per share. In addition to contesting this value on appeal, the purchaser of the majority of Fibrek Holding Inc.’s common shares argues that the judge erred in adding the additional indemnity under art. 1619 of the Civil Code of Québec (S.Q. 1991, c. 64) to the amount payable.

The judge committed certain palpable and overriding errors. First, he should not have disregarded the value of the purchaser’s offer as a starting point for the analysis. Without being the sole relevant factor, market value is a reliable indicator of the fair value of shares. The purchaser’s offer, however, included a premium over the price at which the shares were trading on the market. Further, a large majority of the shareholders, holding 115 million shares, had accepted it. Also, the judge’s criticism of the conduct of the purchaser and the shareholders with whom it had signed hard lock-up agreements for 46% of the outstanding shares was unfounded, although it is true that this made it practically impossible to put a competing bid over the 50% approval mark.

The judge also committed a reviewable error by using a competing bid as the starting price. Indeed, it was nearly impossible for such an offer to materialize, given the conditions attached to it. Moreover, in the context where both the purchaser’s offer and the competing bid included consideration payable in shares, he ought to have taken into account the significant drop in the value of those shares on the valuation date, which he failed to do. He also committed many errors by adding the value of the synergies arising from the transaction to the competing bid, namely because that led him to conduct a hypothetical auction rather than use objective evidence. Although the added premium for the Hydro-Québec contract was somewhat speculative, there is no reason to intervene in this respect on appeal. In conclusion, by updating the purchaser’s offer as at the valuation date, by adding the value of the Hydro-Québec contract and subtracting the environmental liabilities, the Court fixes the value at $1.5973 per share. Last, the appellants are wrong to argue that the judge added the additional indemnity under the Civil Code of Québec. Rather, he used it in the exercise of his discretion under subsection 190(23) of the Canada Business Corporations Act to allow a reasonable rate of interest on the amount payable to dissenting shareholders.

Text of the decision: http://citoyens.soquij.qc.ca