Global GT LP v. Golden Telecom, Inc.

In 2007 Vimpel-Communications purchased Golden Telecom, Inc. (Golden) (defendant) for $105 per share. As a Russian telecommunications company, Golden operated in a relatively risky market. Global GT LP and Global GT Ltd. (collectively, Global) (plaintiffs) were Golden shareholders that dissented from the merger. Global believed that Golden was undervalued in the 2007 merger and sought to receive fair value for its shares through an appraisal proceeding. Golden calculated that the fair value of Global’s shares was $88 per share, and Global calculated that the fair value of its shares was $139 per share. Golden and Global both used discounted-cash-flow analyses to suggest fair values for Global’s shares. However, the parties utilized different equity risk premiums and betas when calculating the discount rate to apply in the discounted-cash-flow analyses. With regard to equity risk premiums, Golden used the Ibbotson equity risk premium (the Ibbotson ERP) of 7.1 percent, and Global utilized a newer equity risk premium developed by academics (the newer ERP) of 6 percent. The Ibbotson ERP was calculated using historical data of stock returns from 1926 to present day, and the newer ERP incorporated predictions about future returns. Though the Ibbotson ERP was more traditional, the newer ERP was more supported by contemporary academic and professional research. With regard to betas, Golden used the Bloomberg beta of 1.32, and Global used the Barra beta of 1.2. The Bloomberg beta was used more commonly than the Barra beta, and the Barra beta was not supported by the same amount of academic literature.