51job: Fair Value Set Below Merger Price in Section 238 Appraisal

Background and Facts

51job was a provider of integrated human resource services in China, with a significant online component. It was de-listed from the Nasdaq on 6 May 2022 after the completion of a take-private transaction by way of a statutory merger which led to the appraisal proceeding under s.238.

The genesis of the take-private was an unsolicited proposal from a private equity firm on 20 September 2020 offering to pay $79.05/share. After a long period of deliberation and discussion with the company’s biggest shareholder, Recruit (holding a blocking stake of 34.8% of the shares), about the potential terms of the transaction, the CEO of 51job decided to join the buyer consortium in May 2021. Another private equity firm joined the buyer consortium, Recruit agreed to rollover its shares in the transaction and after a period of negotiation with a special committee of 51job’s board of directors, a merger agreement was signed on 21 June 2021 for a merger consideration of $79.05/share.

After a go-shop market check that did not elicit any topping bids, in August 2021 the private equity firms in the buyer consortium indicated to 51job that considering the PRC regulatory environment, they considered that they needed to obtain regulatory approval for the transaction. 51job disagreed and for a period through late 2021 progress on the transaction was stalled as regulatory approval was sought. During this time the value of the stocks of PRC internet companies listed on US exchanges plummeted because of regulatory and macro-economic issues.

On 12 January 2022 the buyer consortium submitted a revised bid of $57.25 per share. After taking independent financial and legal advice, the special committee negotiated the price up to $61/share and a further merger agreement was signed on 1 March 2022. Another go-shop market check failed to produce a higher bidder and the merger was approved at an EGM held on 26 April 2022 (the valuation date), with 75% of shareholders who were unaffiliated with the buyer consortium voting in favour of the merger. Between 1 March 2022 and 26 April 2022, the value of PRC internet stocks listed on US exchanges continued to fall, and there was a severe resurgence of COVID in the PRC which impacted 51job’s business.

Expert Evidence

51job’s valuation expert opined that the fair value of 51job’s shares on the valuation date was $31.11/share based on the ATMP of 51job’s stock.

• He looked first at the market price of 51job on 16 September 2020 (the last trading day before the first offer of $79.05 was made public) which was $68.12/ share and concluded that, based on the results of his event study, the market was semi-strong form efficient at the date.
• On the undisputed basis that the market price of 51job was affected by the possibility of a merger at $79.05/share from that point until 12 January 2022 (when the revised offer at $57.25/share was submitted) he concluded, based on the evidence, that the $79.05/share offer was affecting 51job’s market price upwards on 11 January 2022, rather than affecting it downwards.
• He did not consider that there was any MNPI which would prevent reliance on the AMTP and accordingly rolled forward 51job’s market price of 11 January 2022 (which was $45.83/share) to the valuation date of 26 April 2022, by looking at the performance of relevant stock market indices during that period. Because of the impact of COVID and the macro-economic issues referred to, the AMTP on the valuation date was $31.11/share.
• He cross-checked his roll-forward by rolling forward the price on 17 September 2020 to the valuation date using the same methodology which produced a slightly lower value.
• He considered that the merger process was sufficiently robust to merit reliance, and that considering the falling values of PRC companies listed on US exchanges during the relevant period, the buyer group had paid more than fair value, meaning that it was a ceiling on fair value. If merger price was to be used to determine fair value, he opined that it would have to be adjusted downwards.
• He did not consider that a DCF valuation of 51job would be a reliable indicator of fair value, for several reasons including that the projections on which a DCF would be based were stale, overly optimistic and did not go out to a steady state. He also considered that the DCF inputs applied by the dissenters’ expert were skewed high.

The dissenters’ expert opined that the fair value of the dissenters’ shares in 51job on the valuation date was $111.06/share, based on his DCF valuation using management projections prepared by company management in May 2021.

• As regards the merger price, he considered that it was insufficiently robust to be relied upon as an indicator of fair value, in light of what he considered to be: an insufficient market check; lack of protections in the merger terms for minority shareholders; lack of oversight by the special committee; the downward revision of the merger price from $79.05/share to $61/share; and conflicts within the transaction.
• He discounted reliance on the AMTP on the grounds that his event study did not show adequate evidence of semi-strong form efficiency; what he considered to be the ongoing impact of COVID in September 2020; he identified instances of alleged MNPI that were not taken account of the market price; and he did not accept that the market price could be reliably rolled forward to the valuation date.
• He preferred not to use the company’s management projections from February 2022 because of what he said were overstated costs, and the fact that they were prepared by management who had an interest in the merger with insufficient oversight from the Special Committee or its advisors.
• He extended the explicit forecast period of the 2021 management projections by 7 years and tapered down growth rates. He also made some adjustments to reflect the impact of COVID in 2022 and increased competitive pressure.

Fair Value Judgment

The 51job trial took place in June and July 2025. When the Trina Solar PC ruling was handed down, the judge asked the parties for further submissions and expressly addressed the ruling and its implications in the fair value judgment. The judge fully accepted the evidence of 51job’s valuation expert and rejected the evidence of the dissenters’ expert, concluding that fair value was in fact $31.11/share. Specifically:

• He concluded that the dissenters’ expert’s DCF was fundamentally flawed and unreliable for the reasons given by the company and its expert (including optimistic projections, staleness and steady state issues) and said further that he did not consider that the Court could produce its own reliable DCF either.
• He had specific regard to the Trina Solar PC guidance on the comparative reliability exercise to be undertaken and concluded that he could place no reliance on the DCF and could and in this case should place exclusive reliance on the AMTP in accordance with Trina Solar PC and the Delaware cases cited there.
• He concluded that the company’s expert’s AMTP was reliable, supported by credible evidence and withstood a critical judicial analysis on the record.
• As regards the merger price, having considered all the evidence and the criticisms advanced by the dissenters and their experts, he concluded that there was an adequate market check; that the merger process was not perfect but was characterised by many indicia of reliability and there were no substantial deficiencies in the merger process.

Conclusion

The dissenters in 51job are appealing the Court’s judgment. How the Cayman Islands Court of Appeal applies the Trina Solar PC guidance to this judgment, not least because the judge specifically stated he had regard to and applied that guidance and given the deference that the PC mandated appellate courts should apply to first instance judge’s rulings, remains to be seen.

¹ [2025] CIGC (FSD) 112