Post-Merger Appraisal Trial Win

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The North Carolina Business Court judge found in favor of the merged company in this appraisal litigation.

Retained by Cravath, Swaine & Moore

In a trial before the North Carolina Business Court, the judge found in favor of our client, accepting the fair value analysis of our expert. This matter was the first appraisal case of a public company to reach a decision in trial outside of Delaware. It was also the first appellate decision by the North Carolina Supreme Court involving North Carolina’s appraisal statute.

Dissenting shareholders, comprising hedge funds and an individual investor, asserted appraisal rights following British American Tobacco’s acquisition of Reynolds American Inc. (RAI) in 2017. Counsel for RAI retained Cornerstone Research to support Paul Gompers of Harvard University.

“The Court finds Gompers’s Adjusted Unaffected Stock Price to be persuasive evidence that suggests that the deal price is consistent with, and Dissenters’ proposed valuation is inconsistent with, RAI’s fair value on the Transaction Date.”

Professor Gompers testified at trial that all contemporaneous evidence of fair value was consistent with the merger consideration of $59.64 per share at the time the deal was approved. He based his findings on analysis of:

  • Capital markets evidence, including the price of the publicly traded stock of RAI;
  • Precedent transactions and industry performance;
  • Contemporaneous research analyst reports, industry commentary, and internal company evidence, which credibly supported RAI’s financial advisors’ valuation;
  • Risks and outlook facing RAI.

Professor Gompers also rebutted the claims made by the dissenters’ experts. The judge rejected several aspects of the experts’ findings, concluding that:

  • The dissenters’ industry expert’s basis for his projected perpetual growth rate was inconsistent with available evidence because it ignored key risks and potential adverse developments.
  • The inputs and findings of the DCF valuation proposed by the dissenters’ valuation expert were inconsistent with company performance, industry outlook, and available evidence. In particular, the terminal growth rate at which the merged company would be expected to grow in perpetuity was improbably high.
  • The findings of the dissenters’ financial market expert had no relevant basis, and included incorrect assertions regarding market efficiency.

Citing Professor Gompers’s testimony throughout his final judgment, the judge stated, “The Court finds Gompers’s Adjusted Unaffected Stock Price to be persuasive evidence that suggests that the deal price is consistent with, and Dissenters’ proposed valuation is inconsistent with, RAI’s fair value on the Transaction Date.” The judge found in favor of the merged company, opining that “the $59.64 per share that RAI has already paid Defendants equals or exceeds the fair value of RAI shares on the date of the Merger.”

In December 2021, the decision was unanimously affirmed by the North Carolina Supreme Court. The court rejected arguments from the dissenting shareholders challenging the Business Court’s reliance on Professor Gompers’s adjusted unaffected stock price analysis, finding that “The Business Court did not abuse its discretion in choosing to credit Professor Gompers’s … analysis” and ultimately concluding that “the Business Court determined the fair value of RAI shares in a manner which comported with the guidelines set forth in North Carolina’s appraisal statutes.”


For more information on this case, contact Jonathan Rozoff, Jennifer McCabe, or Kyle Milliken.


Case Expert

Paul A. Gompers

Eugene Holman Professor of Business Administration,
Harvard Business School,
Harvard University;
Senior Advisor, Cornerstone Research