Reynolds American Inc. Wins Affirmance of Judicial Appraisal Victory

On December 17, 2021, the North Carolina Supreme Court affirmed the North Carolina Business Court’s April 2020 opinion and 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. This was the first opportunity for the North Carolina Supreme Court to opine on the N.C. appraisal statute.

In the Business Court, RAI sought determination of the fair value of shares of RAI common stock exchanged by former RAI stockholders 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, and it was the first appraisal case of a public company to be tried to judgment outside of Delaware. In April 2020, the Business 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.

The dissenting stockholders appealed the Business Court’s decision, arguing that the Business Court failed to determine the fair value of their shares pursuant to “customary and current valuation concepts and techniques”, that the Business Court failed to determine the fair value of RAI’s shares on the date the merger closed and that the Business Court failed to award additional interest payments to the dissenting stockholders. In its opinion, the Supreme Court affirmed the Business Court’s judgment in which it determined that the dissenters were paid fair value for their shares. The Supreme Court found that the dissenting stockholders’ “characterization of the analysis performed by the Business Court is inconsistent with any fair reading of the challenged judgment”. As the Supreme Court found, “the Business Court was presented with two radically different estimations” and “utilized various ‘customary and current valuation concepts and techniques’ to determine the fair value” of the dissenting stockholders’ shares was no greater than what RAI had already paid. The Supreme Court found the dissenting stockholders’ other challenges to also be without merit.

The Cravath team is led by partner Gary A. Bornstein and includes associates Nicole D. Valente, Brendan R. Blake, Scott B. Cohen, Colin M. Herd and Maximilian J. Auerbach.

The case is Reynolds American Inc v. Third Motion Equities Master Fund Ltd., et al., No. 368A20 (N.C. Supreme Court).