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Reynolds American Inc. Wins Judicial Appraisal Victory

On April 27, 2020, the North Carolina Business Court entered judgment in favor of Cravath client Reynolds American Inc. (“RAI”) in a judicial appraisal proceeding stemming out of RAI’s 2017 merger with British American Tobacco p.l.c. RAI sought determination of the fair value of shares of RAI common stock exchanged by former RAI shareholders in connection with the merger. The cash value of the merger consideration at closing was $65.87 per share. RAI paid the dissenting stockholders $59.64 per share, which it argued was the fair value of the company at closing. The dissenting stockholders argued for a valuation of $92.17, which would have resulted in a judgment of nearly $400 million including interest. The case was tried in June 2019.

In its decision, the Court agreed with RAI’s valuation and held that RAI was not required to make any additional payments to the former stockholders for their shares. Further, the Court lauded RAI’s former directors, executives and advisors as “diligent and knowledgeable professionals [who] worked in good faith to get the best result they could for RAI’s shareholders.” The Court found “that Dissenters’ valuation of $92.17 is an extreme outlier. It implies a $50 billion mispricing of RAI’s shares, which if accepted would appear to be the largest mispricing ever identified in an appraisal case in North Carolina, Delaware, or elsewhere, by far. Moreover, Dissenters’ approach to valuation is unreasonable both as a matter of common sense fact‑finding and under North Carolina law.” This was the first appraisal case of a public company to be tried in North Carolina.

The Cravath team was led by partners Thomas G. Rafferty and Gary A. Bornstein and included associates Nicole D. Valente, Brooke E. Tay and Derek A. Sutton.

The case is Reynolds American Inc v. Third Motion Equities Master Fund Ltd., et al., No. 17‑CVS‑7086 (N.C. Business Court).