Former shareholders of Chinese recruitment giant 51job are weighing an appeal against a Cayman Grand Court ruling that valued the company’s management buyout in May 2022 at just half of its USD 4.3bn equity value, said two sources familiar with the matter.

The judgement under section 238 of Cayman Islands Companies Act was published on 24 November by Justice David Doyle and found that fair value was USD 31.11 per share at the time of the deal – 49% below the USD 61 per share offer price.

The ruling is a blow to the more than 20 asset managers and two individual investors who held USD 1.27bn worth of shares at the merger price. Six previous Cayman appraisal rulings for Chinese ADR take-privates produced awards between 1% and 300% above the deal price.

The judgement “is divorced from reality”, said a source close to one dissenter. “It implies an almost zero enterprise value which can’t possibly make sense as a valuation,” the source added.

The fair value judgement implies an EBITDA multiple below 1x and an implied enterprise value of USD 120m, according to Dealreporter’s calculations based on the deal’s fairness opinion.

It’s likely that most dissenters appeal, said the source and a second source close to another dissenter. An appeal should be filed with the Cayman Islands Court of Appeal (CICA) within 14 days of the judgement filing date, according to a legal note by Carey Olsen.

Doyle’s judgement is “groundbreaking” for being based 100% on an adjusted market trading price valuation (AMTP) methodology, said Kings Chambers. Early Cayman appraisal rulings leaned far more heavily on discounted cash flow (DCF) models, it said.

However, Doyle “concluded that no weight whatsoever” can be placed on the “fundamentally flawed and totally unreliable” DCF analysis carried out by the dissenters’ valuation expert, Travis Taylor.

“The USD 111.06 [per share fair value] figure Taylor has come up with is from another planet in another galaxy totally removed from the real world”, said the Judge. “It only exists in the dissenters’ speculative, distorted, and unreliable DCF spreadsheet.”

Doyle said he had considered various disputed DCF factors including terminal growth rate, WACC, withholding tax, and tax rate. “But try as I might I have been unable to.. produce.. [a]… DCF analysis upon which any weight could properly be attached.”

In awarding 100% weighting to the AMTP valuation methodology deployed by the company’s valuation expert, Professor Lehn, Doyle said, “I adopt it in toto together with the fair value figure of USD 31.11 per share. I do not seek to tinker with it for the sake of tinkering.”

The first dissenter said the Judge has not attempted to grapple with the issues before him. “He has simply said it’s too hard to do a DCF analysis”.

The ruling leaves the court of appeal with nothing to work from in terms of the DCF analysis, said the second dissenter, who questioned whether the case might even have to be re-tried.

Merger process not deficient

As reported, 51job’s dissenters obtained discovery from members of the buyer group, management, special committee and their advisors in an attempt to prove the MBO was orchestrated from the start to “forcibly” cash out minority shareholders at a lowball valuation.

The dissenters’ KC Jonathan Adkin raised these conflicts during cross-examination of the company’s witnesses with particular focus on “the integral role” played by 51job’s strategic consultant Chris Hsu and his alleged influence over the special committee.

Doyle acknowledged that the merger process required “heightened scrutiny” due to the involvement of insiders. But ultimately he concluded that that while “not perfect” it contained “no substantial deficiencies” precluding the company from relying on the merger price as part of its valuation argument.

“I accept that the involvement of Chris Hsu was not ideal,” said Doyle. “But it was not such as to persuade me that there was a lack of independent decision making process within the special committee.”

The special committee could have been more aggressive in its price negotiations with the buyer group, agreed Doyle. But he was reassured by witness evidence from special committee member Li-Lan Cheng that the committee, supported by “top rate” advisors, performed its role adequately.

“I am satisfied there was an adequate market check. I agree with the company that the go-shops in this case were sufficient,” said Doyle.

The Judge was similarly dismissive of the dissenters’ criticisms of CEO Rick Yan, who Doyle said was “not focused on his own personal economic interests”, and CFO Kathleen Chien, who “had loyalty toward Mr Yan” but did “nothing improper to facilitate the progression of the merger”.

After determining fair value to be USD 31.11 per share, Doyle added that he is “minded to order that the dissenters pay the costs of the company such costs to be taxed in default of agreement on the standard basis”.

S238 cases drag on

The judgement, which is Justice Doyle’s first section 238 case and was handed down relatively speedily following completion of the trial in late July, involves one of three high value Chinese ADR appraisal cases that lawyers “expect to transform the Cayman Islands appraisal landscape’.

The other cases involve the MBOs of Sina Corp, which underwent a trial in 1Q25, and 58.com, a ruling for which remains undelivered more than a year after the trial wrapped in September last year.

Doyle’s ruling was also heavily critical of the burden section 238 cases impose on Cayman’s judiciary. “The Cayman Islands appears to have created an industry of its own out of Section 238 cases. But they put a huge strain on the legal system, on its judicial administration staff and on its judges.

He said the lead-in time to trial and the trial’s themselves are too long. Judgements take too long to write “this one being a prime example”, said Doyle. “If I had more time… it would have been much shorter but I have many other cases crying out for scarce judicial time to be spent on them.”

Doyle called on the Section 238 Sub-Committee of the Financial Services Division to make practical recommendations to improve the way appraisal cases are conducted before the court. “All is not well” and changes need to be implemented, he said.

The first dissenter said, “We believe this is Doyle’s personal view rather than reflective of the Cayman court system as a whole. His personal view seems to have driven his approach to this case, leading to a ruling that requires the least amount of time to produce rather than the correct one.”

51job’s take-private was led by CEO Rick Yan and backed by private equity firms DCP Capital and Ocean Link with Japanese strategic shareholder Recruit Holdings in a rollover capacity. Together these parties held around 58% of the shares and voting rights at the time of the delisting.

51job, DCP, Ocean Link, Recruit Holdings and Justice David Doyle did not reply to requests for comment.