The Court of Appeal has directed a fresh High Court hearing to determine the current full market value of Donegal Investment Group plc’s 30% shareholding in Elst, after setting aside the price fixed at the first valuation hearing. The court upheld the remedy requiring the respondents to buy Donegal’s shares, but did not set the new price itself.
In a judgment delivered by Ms Justice Finlay Geoghegan on 8 June 2016, the court considered two appeals arising from Donegal’s petition under section 205 of the Companies Act 1963. Donegal alleged oppression by the other shareholders. At the remedy hearing, however, the respondents admitted unspecified acts of oppression and one specific technical act: a Canadian mushroom business acquisition had not been formally brought to the board for approval. Donegal chose not to adduce evidence to prove its other contested allegations, and the High Court made no findings on them.
The Court of Appeal upheld the High Court’s decision that the respondents should buy Donegal’s shares. It rejected Donegal’s request that the minority shareholder instead be ordered to buy out the majority, and upheld the refusal to order a sale or initial public offering of the company. The appeal court said the evidence did not show that an IPO would produce greater value, and the parties’ different roles in managing the business were relevant to the remedy.
The price had initially been fixed at €30.6 million, based on an assumed 35% shareholding. A separate, unappealed decision established that Donegal held 30%. The Court of Appeal set aside the earlier valuation because the High Court had used a 6.1 EBITDA multiplier derived arithmetically from one subset of transaction comparables. The appeal court said the expert evidence called for professional judgment informed by both transaction and trading comparables, and the High Court had not explained its departure from that approach.
The High Court must now value the 30% stake at its current full market value, without a minority or marketability discount and without using discounted cash flow. It must use 2016 normalised EBITDA, determined in the same manner as the 2014 figure at the first hearing, and select a multiplier after considering relevant transaction and trading comparables, including Walkro, Hokuto and Adelaide Mushrooms. Any deductions, including exceptional capital expenditure, remain for the new hearing.
The appeal court said the remedy was final, leaving the purchase price as the outstanding issue. It urged the parties to try to settle that issue; otherwise, the High Court should manage the further hearing to limit cost and delay.