The Companies Act (2016 Revision) and Trina Solar Ltd Between (1) Maso Capital Investments Ltd (2) Blackwell Partners LLC – Series A Appellants v Trina Solar Ltd Respondent

• Jurisdiction: Cayman Islands
• Judge: Birt, JA,Beatson, JA,Field, JA
• Judgment Date: 04 May 2023
• Docket Number: CICA (Civil) Appeal No. 009 of 2021
• Court: Court of Appeal (Cayman Islands)

In the Matter of the Companies Act (2016 Revision)

And in the Matter of Trina Solar Limited

Between

(1) Maso Capital Investments Limited

(2) Blackwell Partners LLC – Series A

Appellants

and

Trina Solar Limited

Respondent

Before:

The Hon Sir Richard Field, Justice of Appeal

The Hon Sir Michael Birt, Justice of Appeal

The Rt Hon Sir Jack Beatson, Justice of Appeal

CICA (Civil) Appeal No. 009 of 2021

(Formerly Cause No. FSD 92 of 2017 (NSJ))

IN THE COURT OF APPEAL OF THE CAYMAN ISLANDS

ON APPEAL FROM THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

Appearances:

Simon Salzedo KC, instructed by Rupert Bell, Niall Hanna and Patrick McConvey of Walkers for the Appellants

Philip Jones KC instructed by Katie Pearson, Rhiannon Zanetic and Moesha Ramsay-Howell of Harney, Westwood & Riegels for the Respondent

Table of Contents

	Paragraph
Background	2
Proceedings before the judge in outline	12
The judge's decision	20
Approach on appeal	23
Meaning of fair value	34
Grounds of appeal	38
Ground 1—Market Price	40
(i) Semi-strong efficient market
(a) Introduction	41
(b) The evidence	51
(c) The judge's decision	61
(d) Dissenting Shareholders' submissions	63
(e) Discussion	65
(ii) MNPI – the 9,000 MW point
(a) Introduction	67
(b) The evidence	71
(c) The judge's decision	81
(d) Dissenting Shareholders' submissions	82
(e) The Company's submissions	88
(f) Discussion	89
(iii) Relevance of analysts' reports	93
Ground 2—Merger Price
(i) Introduction	109
(ii) The judge's decision	113
(iii) Submissions on appeal	116
(iv) Discussion	123
(a) Fairness Opinion	124
(b) The Norcraft point	132
(c) The remaining points	138
Ground 3 – Management Projections	150
(i) Test for departing from the Management Projections	151
(ii) The 9,000 MW point	161
(iii) Module selling prices
(a) Introduction	162
(b) The evidence	164
(c) The judge's decision	169
(d) Submissions on appeal	170
(e) Discussion	172
(iv) Capacity factors
(a) Introduction	178
(b) The evidence	181
(c) The judge's decision	187
(d) Discussion	188
Ground 4 – The DCF discount	193
(i) Country risk premium
(a) The evidence	195
(b) The judge's decision	201
(c) Submissions on appeal	202
(d) Discussion	204
(ii) Size premium
(a) Introduction	207
(b) The evidence	210
(c) The judge's decision	216
(d) Dissenting Shareholders' submissions	218
(e) Discussion	221
(iii) Cost of debt
(a) Introduction	227
(b) The evidence	229
(c) The judge's decision	232
(d) Discussion	233
Ground 5
(i) Weighting	239
(ii) Approach to evidence and uncertainty	251
Summary of conclusions	263

Birt, JA

1 . This is an appeal by the Appellants (“the Dissenting Shareholders”) against a judgment of Segal J (“the judge”) dated 23 September 2020 (“the Judgment”) in which he determined the fair value of the shares which the Dissenting Shareholders held in the Respondent (“the Company”) pursuant to section 238 of the Companies Act (2016 Revision). The Dissenting Shareholders submit that the judge erred in a number of respects and that the fair value of their shares in the Company is materially higher than he determined.

Background

2 . Changzhou Trina Solar Energy Co Limited (“Trina China”) was incorporated in China in 1997. It was founded by Mr Jifan Gao (“Mr Gao”) who has been chairman of Trina China since its incorporation.

3 . The Company was incorporated as an exempted limited company in the Cayman Islands in March 2006 for use as a listing vehicle to take Trina China public. Trina China became a wholly owned subsidiary of the Company and Mr Gao became chairman and chief executive officer of the Company, which positions he continued to hold at the time of the merger referred to below. Together with his wife and his holding company, he owned 5.6% of the Company's shares. From December 2006, the Company's American Depositary Shares (“ADS”) were listed on the New York Stock Exchange.

4 . There are two segments to the Company's business, namely the upstream and the downstream segments. In its upstream business, the Company manufactures and sells solar photovoltaic (“PV”) modules (also known as solar panels) for residential and commercial use. The upstream business accounts for the majority of the Company's revenue (over 90% in 2015). In its downstream business, the Company develops, designs, manages and sells or operates solar power projects. Historically the downstream business has been focused on China, but in recent years it has expanded into other markets.

5 . The Company has now been taken private following acquisition by a group of investors (“the Buyer Group”) which includes Mr Gao. The acquisition proceeded as follows.

6 . On 12 December 2015 (“the Proposal Date”), the Buyer Group made an offer to acquire all the shares in the Company (except the 5.6% already owned by Mr Gao) at a price of US$11.60 per ADS (“the Merger Price”). All references hereafter to $ are to USD.

7 . Following receipt of the Buyer Group's offer, the Company appointed a Special Committee on 13 December 2015 to evaluate the proposal. The members of the Special Committee were two directors of the Company, Mr Quian Zhao (“Mr Zhao”) and Mr Sean Shao (“Mr Shao”). Mr Zhao gave evidence at the trial but Mr Shao did not. The Special Committee appointed Kirkland and Ellis LLP as its US legal adviser and Citigroup Global Markets Inc (“Citi”) as financial adviser.

8 . The Special Committee asked Citi to perform a market check in order to identify any other potential buyers. This involved contacting other potential buyers. Citi was also asked to produce a fairness analysis, in which Citi produced its own valuation of the Company's ADS. Citi concluded on the basis of that analysis (and subject to various qualifications, including that Citi had assumed the Company's management forecasts of future performance (“the Management Projections”) to be correct) that the Merger Price was fair (“the Fairness Opinion”).

9 . On 1 August 2016 (“the Acceptance Date”), the Special Committee approved and recommended the offer to the shareholders at the Merger Price.

10 . An EGM of the Company was held on 16 December 2016 (“the Valuation Date”) to consider the Buyer Group's offer. At the EGM, 2.2% of shares were voted against the merger, 40.6% were not directly voted, but their owners were deemed to have given their proxy to the Company's management pursuant to a term of the ADS Depository Agreement, and thus were deemed to have voted for the merger; and 57.2% were voted in favour of the merger. Accordingly the resolution approving the merger was passed with 97.8% of shares voted or deemed to have been voted in its favour.

11 . The merger completed on 13 March 2017, at which point the Company's ADS ceased trading on the New York Stock Exchange. The former shareholders were paid the Merger Price save for the Dissenting Shareholders who exercised their right under section 238 to have the fair value of their shares determined by the Grand Court.

The proceedings before the judge in outline

12 . The evidence before the judge consisted of the following:

There was also evidence in writing from two experts on the law of Delaware but they were not called to give oral evidence.

• (i) two witnesses of fact, namely Mr Zhao who was a director of the Company and a member of the Special Committee and Mr Chan, who was the Company's Vice President of Legal Affairs;

• (ii) two experts on the solar industry, namely Dr Shalom Goffri for the Company and Mr Christopher Russo for the Dissenting Shareholders; and

• (iii) two valuation experts, namely Ms Susan Glass for the Company and Mr Richard Edwards for the Dissenting Shareholders.

13 . In cases concerning fair value under section 238, there are three main valuation methodologies which fall for consideration. The first is the adjusted trading price. This is the price at which the shares were trading on the relevant stock market but subject to an estimate of what the price of those shares would have been as at the Valuation Date in the absence of any proposed merger. In other words an adjustment is made to try and strip out the effect on the trading price of the fact that an offer to acquire the shares has been made at a known price. When speaking in general terms, I shall refer to this as “the adjusted trading price” or “the market price”.

14 . Secondly, there is the price which has been offered by the acquiring entity and which has been accepted by the shareholders other than those who are dissenting. When speaking in general terms, I shall refer to this price as the ‘merger price’.

15 . Finally, there is a Discounted Cash Flow (“DCF”) valuation. This was summarised by this Court in the case of In Re Shanda Games Limited [2018] (1) CILR 352 at [61] in the following terms:

“As its name indicates, a DCF analysis contains two main elements: a prediction of future cash flows, and the application to those cash flows of a discount rate so as to translate the future cash flows into a present capital value. In effect, the exercise is designed to identify how much it would have cost at the valuation date to buy an investment with a rate of return and a risk profile equivalent to that of the company's business.”

16 . There were many issues before the judge, a number of which are no longer disputed and therefore it is not necessary to mention them. So far as is relevant for this appeal, the position of the parties before the judge was as follows.

17 . The Company's primary submission was that the fair value should be determined by reference to the adjusted trading...