The Companies Act (2022 Revision) and 58.com, Inc.
| Jurisdiction | Cayman Islands |
| Judge | Justice Ramsay-Hale |
| Judgment Date | 02 April 2024 |
| Docket Number | CAUSE NO: FSD 275 OF 2020 (MRHCJ) |
| Court | Grand Court (Cayman Islands) |
The Chief Justice, the Hon. Justice Ramsay-Hale
CAUSE NO: FSD 275 OF 2020 (MRHCJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Companies — arrangements and reconstructions — dissenting shareholders — fair value of shares — dissenting shareholders' expert request for post-valuation date disclosure — whether Company entitled to seek a determination from the court where the scope of the request is unclear or its relevance disputed — whether necessary for the dissenters' expert to demonstrate that the information or documents requested is likely to be relevant to the fair value of the shares at the valuation date
Mr. Richard Boulton KC with Caroline Moran, Malachi Sweetman and Daniel Mills of Maples for the Company
Mr. Jonathan Adkin KC instructed by Dunzelle Daker of Ogier, Katie Logan of Campbells, Sam Dawson, Mark Ffrancon Dowds and Tom Stuart of Carey Olsen and Rocco Cecere of Collas Crill for the Dissenters
This is the decision on the summons filed on 6 January 2023 on behalf of the dissenting shareholders (the “Dissenters”) in these proceedings, which are pursued under section 238 of the Companies Act (the “Act”) and by which the Dissenters seek payment of the fair value for their shares in 58.com, Inc (the “Company”).
The Dissenters seek an order, pursuant to paragraphs 18 to 24 of the Directions Order and section 31 of the Judicature Act (2021 Revision) and/or the inherent jurisdiction of the Court that,
a. the Company shall provide written answers and any responsive documents, communications and materials, to each of the information requests which have been submitted to the Company by the Dissenters' expert within 7 days.
b. As regards any future information requests, the fact that information, documentation or material requested by an expert was created or relates to a date after the Valuation Date is not a basis for the Company objecting to the provision of such information, documentation or material or requiring an explanation of its relevance.
The relevant parts of the Direction Order are set out below:
F. Experts' Information Requests of the Company
18 An Expert may submit to the Company written requests for any additional information, documents (of whatsoever description, whether electronic, hard copy or in any other format), and communications (whether by email, or otherwise) and any other materials prepared or created for this purpose which are or have been in its possession, custody or power or information requested by any Expert for the purpose of preparing his/her Expert Reports (“Information Requests”). For the avoidance of doubt, an Information Request may include requests for information, documents, communications or materials created after the Valuation Date.
…
21 The Company shall provide written answers to each batch of Information Requests and shall upload the written answers and any other responsive documents to the Data Room as soon as practicable, and in any event (unless otherwise agreed) within 21 days. For the avoidance of doubt, should the Information Request be received by the Company after 5.30pm (Cayman Islands lime), the timeframes above shall begin to run from 8.30am (Cayman Islands time) the following business day (being any calendar day on which banks are open in the Cayman Islands and Beijing (“Business Day”)).
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23 If an Expert submits an Information Request (“Subsequent Request”) before the earlier of the: (a) deadline for the Company to respond to the Expert's immediately prior Information Request; or (b) date the Company actually responded to the Expert's immediately prior Information Request (“Prior Request Deadline”), then for the Subsequent Request the time period in paragraph 21 shall run from the Prior Request Deadline (rather than the date the Subsequent Request is submitted to the Company).
24 The Experts' Information Requests shall be made periodically and the Experts shall use their best endeavours to submit only concise and clear Information Requests.
The Company has refused to respond to certain information requests made by the Dissenters' expert on the ground that the requests relate to material which post-dates the valuation date. The Company's position is that unless the Company agrees, the Dissenters' expert is required to demonstrate to the satisfaction of the Court that the response is likely to be relevant to the issue of fair value. The Dissenters' position is that there is no such rule and the experts are best placed to assess what information might be relevant to their task and the Court ought not to second-guess them. The requests should only be refused if they are oppressive or burdensome.
The disputed Information Requests made by Dissenters' expert, Prof. Yilmaz in their original form were as follows:
YAS 1.6
Please provide all Materials supporting the valuation implied in Zhuan Zhuan's US$390 million Series C round of financing or its $100 million Series D-1 round of financing? In respect of any such Materials, please identify:
YAS.2.6
Please provide the Share Purchase Agreements, any related agreements, and any presentations, analysis and valuation materials relating to the indicated financing rounds for the following long-term investments. Please also provide such materials for any contemplated fund-raising transactions, including those that were not consummated or are in the process of being consummated:
a. Zhuan Zhuan (Series A, Series B, Series C, Series D)
b. Guazi (Series A, Series B, Series B-1, Series C, Series C-1, Series D, Series D-1, Series E, Series E-1)
c. Tubatu (Series A, Series B, Series C)
d. Tujia (Series A, Series B, Series C, Series D, Series E)
e. Sweetome (Series F)
f. 58 Daojia (Series A, Series B)
g. 58 Freight (Series A, Series B)
Mr. Adkin KC, who appeared on behalf of the Dissenters, submitted that YAS 1.6 had been subsumed in YAS 2.6 and need not be given separate consideration. He noted further that the scope of YAS 2.6 was narrowed in inter partes correspondence as follows:
“ YAS 2B.6: to the extent necessary, this request can be narrowed so as to apply to any company (including its affiliates) or third-party valuation analyses supporting the implied valuations for the financing rounds listed in the request.”
Mr. Adkin explained that the value of the assets owned by the Company at the valuation date was important to the fair value of the shares. Certain assets owned by the Company had undergone various financing rounds after the valuation date. In order to raise the finance sought, the assets would have to have been valued and the request was concerned with the valuations undertaken for these financing rounds.
He referred to the response made by Prof. Yilmaz to queries raised by the Company as to the relevance of the material that could be obtained from these financing rounds which was in the following terms:
“The Company has several long-term investments. The value of those long-term investments informed by information post-dating the valuation date, is relevant to my expert reports and fair value of the Company's share because it allows me to determine the extent to which the earlier valuation of certain long-term investments provided by management accurately reflected more recent data from the time of the valuation date.”
Prof. Yilmaz illustrated the point with respect to the financing rounds for the asset known as Zhuanzhuan:
“Zhuanzhuan's series C round was closed in April 2021. Typically, the relevant valuation materials are prepared and shared with investors well in advance of the closing date of funding rounds. The only way to understand how much of the information relevant to Zhuanzhuan's valuation was available as of the Valuation Date is to obtain agreements, presentations, analysis and valuation materials related to series C round and to analyze them.”
By way of further explanation, Prof. Yilmaz says with respect to the same transaction:
“ In respect of Zhuan Zhuan and my requests at YAS 1.6, 15 June2020, Houlihan Lokey concluded a fair equity value range of between $552 million to $1.035 billion based on DCF analysis and $637 million to $948 million based on selected companies analysis, whereas the value of 58.com's equity interest in Zhuan Zhuan based on Zhuan Zhuan's acquisition of ZLJ in May 2020 was $863 million. If the round of financing for Zhuan Zhuan in April 2021 indicates a value closer to the value implied by the May 2020 transaction, some of the data used as part of that valuation could be relevant to my assessment of Zhuan Zhuan's fair value.”
He said further, on the issue of relevance:
“In my opinion, the documents that I have requested will themselves indicate the extent to which they comprise or are based on data available at the valuation date. In my experience, I would expect that internal preparations regarding significant funding rounds to be underway months before the rounds themselves are completed and the date used as part of those preparations to have been in existence even earlier.”
The Company refused to comply with the requests on the basis that Prof. Yilmaz had not established that the material produced for the financing rounds which occurred sometime after the valuation date would be relevant to the issue of fair value, save for the request related to the funding rounds for 58 Freight which closed a matter of 10 days after the valuation date and which the Company conceded might contain material which pre-dated the valuation date.
The Dissenters contend that the Company is not entitled to refuse to answer a request on the basis that the Dissenters' expert...
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