CL-2022-000025 - [2025] EWHC 2331 (Comm)

The dispute relating to whether the market approach was appropriate related to the buybacks of its shares that PGC has undertaken over the last few years. Mr Weaver produced the following table in his report providing an overview of the company buybacks:

Those figures were not controversial. The experts recorded in their joint statement that PGC had bought back numerous shares from minority shareholders over the preceding few years, and that:

“In theory, therefore, a holder of a minority shareholding in the Company has a route to liquidity by waiting for the next Company Buy-Back and selling shares to the Company at the offered price, which has been NZD 0.29 for most of the share buybacks made by the Company.”

Mr Weaver considered that, based on the buybacks, the price of NZD 0.29 reflected a minimum price for PGC shares. He drew attention to what was stated in the PGC Directors’ Report dated 5 December 2024:

“Share BuyBack

Capital management remains an ongoing focus for the Board and we expect to continue to allocate capital to facilitate buyback of shares.

[…]

PGC shares trade at a considerable discount to the market value of the underlying assets and buying them back is consistent with our value creation strategy.”

Mr Weaver concluded that, consistently since 2020, PGC had determined that it made commercial sense to repurchase its own shares at around NZD 0.29 per share, referring to a “considerable discount” to the market value of its assets, and therefore determining that its shares represented considerably more value to it than that price.

He also considered that the history of recurrent company buybacks, in which PGC had brought back over 17.5 million of its own shares between February 2020 and April 2024, provided a strong indication that there would be future buy backs, providing access to a market for Mr Perelman to sell his shares.

He recognised that market value is defined as the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, but stated that any third party buyer in a hypothetical arm’s length transaction would be aware that PGC is a willing buyer of PGC shares at the typical historical buyback price of NZD 0.29, such that the market of all potential buyers would know that they could sell the shares back to PGC at this buyback price. He therefore considered that the liquidity provided by PGC was a feature of the market, rather than being reflective of a Special Purchaser.

Mr Davies, by contrast, did not regard the company buybacks to provide a reliable route to liquidity in respect of PGC shares. He pointed out that an arm’s length transaction (as defined in the IVS) is one between parties who do not have a particular or special relationship and that a market value transaction is one presumed to be between unrelated parties, each acting independently. He drew attention to the IVS definition of Special Purchaser, which is “A particular buyer for whom a particular asset has a special value because of advantages arising from its ownership that would not be available to other buyers in a market” and noted that market value “ignores any price distortions caused by special value (an amount that reflects particular attributes of an asset that are only of value to a special purchaser).”

In Mr Davies’ view, given that Mr Kerr is (and at all material times was) the managing director and controlling shareholder of PGC, and that PGC is the legal entity in which the PGC shares are a shareholding, both Mr Kerr and PGC should be considered special purchasers. He therefore considered that share prices quoted or offered to shareholders by PGC and/or Mr Kerr (including via company buybacks) potentially contained price distortions caused by special value.

In relation to the buybacks, Mr Davies raised a further point in his reports:

None of this was put to Mr Kerr as a factual allegation, and Mr Weaver’s view that the dispute was irrelevant given the revenue streams to PGC’s business was not challenged in cross-examination. Mr Lemer’s closing submissions did not refer to the point (either in writing or orally). In the circumstances, I do not take it into account in considering whether the buybacks were a potential route to liquidity.

As I have already noted, Mr Davies’ preferred valuation approach (which Mr Weaver also adopted in addition to or in the alternative to his reliance on the buyback prices) was the “summation method” within the costs approach to valuation. This involved valuing each of the assets held by PGC and adding up their value. The experts agreed a number of the elements of PGC’s value on this basis:

The dispute between the experts on the cost approach turned entirely on their approaches to valuation of the RCL assets. This made a huge difference to their respective valuations of the PGC shares. On Mr Davies’ valuation, each PGC share was worth NZ$0.06. (Footnote: ¹⁰) On Mr Weaver’s valuation, each share was worth NZ$1.12. In summary, their respective approaches were as follows.

Mr Davies considered a basket of companies with publicly listed shared which hold assets similar to the RCL assets to identify an appropriate market price to book value ratio (P/BV), which he found to be 1.0x, which ratio he then applied to the book value of the RCL assets. In other words, he calculated that companies with assets similar to the RCL assets are valued in the market at the book value of their assets, thus he concluded that the RCL assets should also be valued at their book value. (Footnote: ¹¹)

Mr Weaver estimated the market value of the inventories belonging to RCL by applying an assumed loan-to-value ratio by reference to the bank debt secured on RCL’s inventories. He identified a list of comparable companies, calculated the loan-to-value ratio for the borrowing undertaken by those companies, from which he derived a 50% ratio. He noted that the RCL assets had been used to secure debts of £153m, to which he applied the 50% ratio, deriving the value of RCL’s assets therefore to be £306m.

Each had substantial criticisms of the other’s methodology. Mr Davies did not consider a loan-to-value ratio to be a recognised or commonly adopted valuation metric, and did not consider taking an average of the observed range (as Mr Weaver did) to be a meaningful valuation approach. He noted that the size of a company’s loans compared to the value of its relevant assets was a function of factors which are specific to the company in question, its assets and its financing needs. He noted that the loan-to-value figures for Mr Weaver’s comparable companies ranged from 23% to 93%, suggesting that the ratio was company specific in each case.

Mr Weaver in turn noted that of the companies in Mr Davies’ listed peer group (from which his P/BV ratio was derived) most of them either (unlike PGC) capitalised their finance costs as part of their inventories (thereby increasing their assets’ book value compared to PGC) or they recognised their assets as investment properties (not as inventories) and reported their book value as fair value (not cost). He said the group was therefore not comparable to RCL.

In response to Mr Weaver’s observations on his listed peer group, Mr Davies revised the list and adjusted his calculation, which he said did not materially change the observed average P/BV ration of 1.0x. Mr Weaver countered by saying this would require further detailed analysis of the various companies’ financial statements over several years.

Mr Weaver also noted that, on Mr Davies’ conclusion, PGC had managed to raise £153m of secured debt against RCL’s inventories with a value of £134m, therefore achieving a loan-to-value ratio of over 114%, which he said would be extraordinary (including the lenders being apparently content with over £19m of their loaned funds being unsecured). In his view £134m could not have reflected the lenders’ view of the value of the RCL assets.