Exxon-IOC Arrangment Dissent Rights

[2126]

I've been looking at the Exxon/IOC Arrangment re: Dissent Rights. I've noticed a few differences between the OSH and Exxon deals that may be important:

1. Under the Exxon deal, 'fair value' for Dissent Rights purposes is to be determined as of the "Effective Time" [ie. the exact time on the Effective Date that the Arrangment goes into effect, ie. the closing time and date when shares are surrendered by IOC shareholders and shares/cash/CRPs are issued]. This is found on P. 75 of the Arrangment PDF, under Article 4, Dissent Rights, Section 4.1(a)(i).

This means that the offer to Dissenting Shareholders of fair value for their dissenting shares will be made on or prior to the closing of the Arrangment. Recall that this is anytime after the vote up till October 31, unless extended to December 14 by mutual agreement of Exxon and IOC.

2. IOC has a duty to inform Exxon of any Dissenting Shareholders prior to the meeting/vote on September 21; and also a duty to allow Exxon to review and comment on any communications from Dissenting Shareholders prior to the meeting/vote. [Source: P. 19 of Arrangment PDF, under Article 2, Company Meeting , Section 2.4(e).

This means that Exxon will be advising IOC on dealing with any dissenting shareholders.

My take on these two provisions is that Exxon will advise IOC of a cash price on the value of the CRP to be added to the $45 share price to arrive at the "fair value" offer to be made to the dissenting shareholders on or prior to the closing of the Arrangement on or before October 31, or no later than December 14, if agreed to by the parties. It is anyone's guess what such a "fair value" offer will be. A7 will likely be in the process of being drillied but not tested unless the Effective Date is pushed out to November or December.

[kommonsents]

I've been looking at the Exxon/IOC Arrangment re: Dissent Rights. I've noticed a few differences between the OSH and Exxon deals that may be important:

1. Under the Exxon deal, 'fair value' for Dissent Rights purposes is to be determined as of the "Effective Time" [ie. the exact time on the Effective Date that the Arrangment goes into effect, ie. the closing time and date when shares are surrendered by IOC shareholders and shares/cash/CRPs are issued]. This is found on P. 75 of the Arrangment PDF, under Article 4, Dissent Rights, Section 4.1(a)(i).

This means that the offer to Dissenting Shareholders of fair value for their dissenting shares will be made on or prior to the closing of the Arrangment. Recall that this is anytime after the vote up till October 31, unless extended to December 14 by mutual agreement of Exxon and IOC.

2. IOC has a duty to inform Exxon of any Dissenting Shareholders prior to the meeting/vote on September 21; and also a duty to allow Exxon to review and comment on any communications from Dissenting Shareholders prior to the meeting/vote. [Source: P. 19 of Arrangment PDF, under Article 2, Company Meeting , Section 2.4(e).

This means that Exxon will be advising IOC on dealing with any dissenting shareholders.

My take on these two provisions is that Exxon will advise IOC of a cash price on the value of the CRP to be added to the $45 share price to arrive at the "fair value" offer to be made to the dissenting shareholders on or prior to the closing of the Arrangement on or before October 31, or no later than December 14, if agreed to by the parties. It is anyone's guess what such a "fair value" offer will be. A7 will likely be in the process of being drillied but not tested unless the Effective Date is pushed out to November or December.

Thanks for the information, 2126.

I wonder then, if a dissenting shareholder would then have the option of accepting the fair value offer or the original offer of $45 plus the CRP?

And, would the dissenting shareholder have the option of accepting XOM shares instead of cash?

And can a shareholder reach an agreement separately from the group of dissenting shareholders?  Or do they have to act in unison?

[2126]

Thanks for the information, 2126.

I wonder then, if a dissenting shareholder would then have the option of accepting the fair value offer or the original offer of $45 plus the CRP?

And, would the dissenting shareholder have the option of accepting XOM shares instead of cash?

And can a shareholder reach an agreement separately from the group of dissenting shareholders?  Or do they have to act in unison?

All excellent questions, Kommon.

First, on the "effective date," dissenting shareholder's shares are surrendered to IOC/Exxon, and such shareholders only retain their right to "fair value" for those shares. Thus, the only way that a dissenting shareholder could make a choice between 'fair value' and the original Exxon bid would be if IOC announced the 'fair value' offer prior to the 'effective date'. They do have that option; but they must, under the terms of the Arrangement, announce the 'fair value' no later than the 'effective date'. If they choose to wait till that date, dissenting shareholders will not have that option.One point to keep in mind is that neither IOC or Exxon really want any dissenting shareholders to deal with. If dissenting shareholders are a large enough block and they reject all settlement offers, it could become very expensive for both sides--and even Exxon does not like to waste money on lawyers.

Next, as far as I can tell from my research, 'fair value' for dissenting shareholders is nearly always cash. Exxon could (through IOC) allow a 'fair value' offer to include the $45 share swap Plus cash for the CRP. This would have to be negotiated with IOC. Dissenting shareholders may also be included in such negotiations if there are sufficient dissenting shares.

Finally, each dissenting shareholder may accept or decline any 'fair value' offer individually. Assuming at least one dissenting shareholder, we know there will be at least one 'fair value' offer on or before the 'effective date' [closing--some time in October, in my estimation]. If all dissenting shareholders do not accept this initial offer, there may be additional offers, which, again, each dissenting shareholder may accept or decline individually. What is not allowed are separate 'fair value' offers to separate dissenting shareholders. In other words, IOC/Exxon can not make a side deal with anyone and not offer the same exact terms to all dissenting shareholders.

Also, an important additional issue that I have not noted is that Yukon uses "fair value" appraisal as opposed to "fair market value" in its dissenting shareholder statute. This seemingly small distinction can become very important should the Yukon Court choose to interpret it as some important US court decisions have. In many US jurisdictions [Delaware, importantly], 'fair value' generally excludes the use of discounts to valuation, as opposed to 'fair market value' which may use various discounts. "Fair market value'" assumes a willing buyer and a willing seller. "Fair value" generally does neither. This distinction could be very critical in a court-ordered 'fair value' appraisal of IOC assets [much the same, in theory, as a 'water drive' resevoir appraisal discount can have a dramatic impact on gas/oil appraisals].

[kommonsents]

Great analysis, 2126. I appreciate your time and expertise in providing your input for us all to benefit from. It is this type information we will all need to know and understand when time to make final decisions on how to vote and especially if to vote NO dissenting, which I am leaning towards at this time.

I look forward to more of your analyses. Thank you.

[2126]

One additional point that I should mention regarding dissenting shareholder rights and the Exxon/IOC Arrangement:

• Under the Arrangment, upon request by Exxon, IOC must use all 'reasonable commercial efforts' to obtain the withdrawal of any dissents.
• IOC is not required to make any additional payments or concessions to such dissenting shareholders, but it is also not barred from doing so.
• Further, IOC may not make any settlement offer to an dissenting shareholders without Exxon's approval.
• Finally, if desired by Exxon, it may participate in any negotiations with dissenting shareholders.

Thus, Exxon has secured for itself a very major role in any negotiations with dissenting shareholders [likely including Phil].

Elsewhere on this board, we have heard speculation the Phil is negotiating with Exxon regarding the bid. One outcome of that is a higher bid by Exxon, prior to the vote, if it feels that a NO vote may gain sufficient traction to prevail. Personally, I don't think that will happen. Another outcome is that Phil's negotiation with Exxon will then result in Exxon joining the IOC pre-vote or pre-closing negotiations with dissenting shareholders [which will likely include Phil] and Exxon may push IOC to accept some level of the concessions that Phil has demanded be included in any 'fair value' offer made by IOC to all of the dissenting shareholders. This would, if it happens, unfortunately exclude the majority of current shareholders from any such concessions, unless they vote NO/Dissent.

Finally, it is worth noting again, that Exxon desires IOC to reach agreement with the dissenting shareholders, and to do so prior to the vote/meeting. Exxon wants this so much that they inserted the terms of the above-noted clause in the Arrangement, perhaps anticipating a dissent by Phil and others that could torpedo the whole deal.

Source: Exxon/IOC Arrangment PDF p..24-25 [Dissenting Shareholders, Section 2.18]

[2126]

One more comment (sorry for being long-winded, I've been feeling much better 6 weeks post-accident):

On May 31, 2016, as most of you know, dissenting shareholders of Dell won their appraisal rights case before a Delaware Court, with an appraisal of roughly 25% higher than the price non-dissenters were given. Take into account that the case took about 3 years to final judgement and that the Dell case was not a merger, but taking the company private (a much different set of facts from IOC). However, part of the Delaware Court decision relied on the difference between 'fair value' and 'market value'. Dell relied on the value of its stock at the time of the buyout by management. The Court rejected this view and held that 'fair value' was the correct measure of appraisal. Here is a excerpt from a US law firm analyzing the Dell appraisal decision:

"There was 'extensive and compelling' evidence of a 'valuation gap between the market’s perception and the Company’s operative reality.' The Court found an 'anti-bubble'—due to '[m]arket myopia,' investors and analysts focused on Dell’s 'short-term, quarter-by-quarter results' although the Company had made $14 billion in investments that had yet to generate anticipated results." [NOTE: the interior quotes ['] are taken directly from the Court's decision.]

You can readily see that this analysis is very remarkably similar to the IOC situation. I believe that there is and has been since December 2013 a "valuation gap between the market's perception and the Company's operative reality." And that, additionally, that IOC has clearly made extensive "investments that (have) yet to generate anticipated results."

You know that the Exxon legal team is very aware of these important issues from a very important (though US) court decision on 'fair value' appraisal rights. I would hope that Phil's legal team is also aware of this very relevant legal decision's implication for IOC dissenting shareholders. Though the Yukon Courts do not rely US court cases as precedents in their own decisions, they are certainly quite aware of the current legal trends that are impacting corporate rights in North America.

[kommonsents]

All the more reason to vote NO dissenting.

Thanks again, 2126, for your analysis. Keep them coming! Each is a jewel of information.

[Li'loilady]

So glad you're feeling better and better.  This kind of legal option we're looking at is by nature "long-winded" ya' might say.  Thanks for doing what it takes.  Your input is invaluable.

[jft310]

I sent the Dell case to Phil and team . They have had talks with 3 Yukon law firms as to no dissenting .
Peeps should support PM and his efforts to try to get a better deal . Or do nothing and get nothing .

[2126]

I sent the Dell case to Phil and team . They have had talks with 3 Yukon law firms as to no dissenting . Peeps should support PM and his efforts to try to get a better deal . Or do nothing and get nothing .

Good idea, thanks!