Successful Exercise of Dissent Rights Reaffirms Importance of Transaction Price

In a rare example of a successful exercise of statutory dissent rights, a group of shareholders dissenting from a court-approved merger recently obtained a fair value determination five times above that being urged by the respondent cannabis company. While the result may be noteworthy, the principles the B.C. Supreme Court relied on in Michalowski (Trustee) v Gold Flora Corporation¹ were largely consistent with precedent and, in particular, with other courts’ focus on transaction price arising from a broad and fair market canvass as the best indicator of fair market value.

Background

This dissent proceeding was brought in response to a merger between TPCO Holding Corp. (“TPCO”), a cannabis company publicly traded on the NEO Exchange (GRAM.U) and the OTCQX (GRAMF), and Gold Flora, LLC (“Old Gold Flora”), a privately held cannabis company. The merger was effected by way of a Court-approved plan of arrangement in which a newly formed entity, Gold Flora Corporation, acquired all shares of TPCO and Old Gold Flora.

The merger was the outcome of a strategic process conducted by TPCO and its advisors throughout 2022 and into 2023. TPCO’s board established a special committee to review various available strategic opportunities. Negotiations between TPCO and Old Gold Flora took place over several months and resulted in TPCO’s board entering into a merger agreement, obtaining two fairness opinions on the merger, and recommending the merger to its shareholders in February 2023. In its press release announcing the merger agreement, TPCO stated that “The Business Combination values [Old] Gold Flora at [USD] $1.50 per Gold Flora Unit and [TPCO] at [USD] $0.9847 per TPCO Share.” Pursuant to the merger transaction, TPCO shareholders received one share in the newly formed Gold Flora Corporation for each TPCO share held and holders of Old Gold Flora membership units received 1.5233 shares of Gold Flora Corporation for each Old Gold Flora unit held.

The plan of arrangement provided TPCO shareholders with dissent rights in respect of the merger, in accordance with the applicable provisions of B.C.’s Business Corporations Act. The applicants exercised these rights and sought a determination from the Court regarding the “payout value” for their TPCO shares (called “fair value” under other provincial corporate statutes).

B.C. Court Decision

The dissenting shareholders sought a payout value of USD $0.9847 per share, being the implied transaction share price announced by TPCO in its public statements, regulatory filings, and statements to shareholders. The respondent company instead urged a payout value of USD $0.17 per share, being TPCO’s trading price on the agreed valuation date. The company argued the USD $0.9847 share price referenced in its statements was only an implied value that was derived from the share exchange ratio negotiated by the parties and the deemed value that Old Gold Flora (a private company) ascribed to itself, and had no bearing on TPCO’s actual share value.

Both parties submitted expert opinions, and advanced competing factual narratives of whether the transaction was a “merger of equals” (where the exchange ratio would generally be the focus of negotiations and an implied share value derived thereafter for the purpose of allocating share ownership in the combined company) or instead akin to an auction process (where the per-share value would be the primary issue being negotiated).

After evaluating the evidence, the Court agreed with the dissenting shareholders, finding that TPCO undertook a broad scan for potential business opportunities focused on share value maximization, and that Old Gold Flora pursued TPCO. The Court observed that the stated USD $0.9847 share value was the benchmark used by TPCO’s financial advisor in conducting its valuation work and providing its fairness opinion. The Court agreed with the dissenting shareholders’ expert’s opinion that stating a share value in a share exchange transaction where one party is a privately held company offered a way to provide a reliable foundation for the merits of the deal to be assessed by shareholders. The Court also found that given TPCO’s reference to the USD $0.9847 share value in its U.S. securities filings, this was a representation about its share value which, by law, could not be misleading.

The Court was not prepared to accept the company’s argument that TPCO’s trading price was indicative of payout value, finding that TPCO was not trading in an efficient market. TPCO’s stock did not react to value-relevant news (suggesting unsophisticated ‘noise traders’ were dominating the market rather than sophisticated investors who understood the stock’s value); it traded on an over-the-counter market which required a broker rather than being fully accessible; and a high concentration of its trading was done by TPCO insiders. The Court also noted that TPCO had significant value to contribute to the merger that was not recognized in its trading price, such as USD $80 million in cash and its status as a publicly traded company.

Ultimately, the Court considered the attributed TPCO share value to be the more reliable indicator of payout value than TPCO’s trading price, given the context in which the transaction arose, and awarded the USD $0.9847 per share sought by the dissenting shareholders.

Takeaways for Shareholders and Companies

While the Court was careful to remind shareholders and companies that in dissent proceedings, the “one true rule is to consider all the evidence that might be helpful, and to consider the particular factors in the particular case” and that “factors which may be critically important in one case may be meaningless in another”², certain instructive guidance can nonetheless be taken from the Court’s direction.

• The nature of the transaction matters. The Court devoted much of its analysis to considering whether the transaction at issue was a “merger of equals” or more akin to an auction of TPCO. If it had been the former, other considerations beyond the share value of TPCO may have predominated and the transaction value may have been less indicative of payout value than it ultimately was in this case. In other words, in a true merger of equals, parties may need to look to other evidence and factors (including trading price, if available, and expert opinion considering various valuation metrics) to establish fair value in a dissent proceeding.
  
• Transaction price continues to be a key indicator of “fair value” where a full and fair strategic process is conducted. Since the Court concluded the transaction was the outcome of a strategic process where TCPO's goal was share value maximization, it accepted the price which the market ultimately bore out as the best evidence of share value, consistent with prior precedent including the leading dissent case from 2020, Carlock v. ExxonMobil Canada Holdings ULC.³ TPCO’s broad scan for opportunities included establishing a special committee, obtaining two fairness opinions, and conducting extensive due diligence and analysis into its value, all of which gave the Court comfort that the merger agreement and the value accorded to the TPCO shares reflected the shares’ fair value.
  
• Share price is not determinative in an inefficient market. The Court noted that where trading is characterized by low volume and liquidity, a low level of participation by informed investors, and a failure to respond to value-relevant news, stock is not trading in an efficient market and market price is not a reliable indicator of share value. These factors all reflect impediments that may be more or less relevant in a particular case and will inform arguments for dissenting shareholders and companies, as applicable. Where trading price and transaction price reveal conflicting stories about a share’s value, as in this case, a court will likely require expert and factual evidence to explain the basis for the conflict and which one is a better reflection of fair value in the particular case.

For further information regarding this Update, please contact the author or any member of our Capital Markets Group.

¹ 2025 BCSC 1554. The decision may be appealed until September 14, 2025. 

² 2025 BCSC 1554 at para. 12.

³ 2020 YKCA 4. For a summary of this decision, see our February 24, 2020 Update, Court of Appeal Endorses Reliability of Transaction Price in Dissent Proceeding