KŠB secures landmark Supreme Court ruling on size premiums in squeeze-out valuations

The dispute concerned the consideration received in 2018 by the minority shareholders of Léčebné lázně Mariánské Lázně a.s. in a squeeze out, i.e. the forced buy-out of minority shareholders by the majority shareholder. At the heart of the dispute was a question the Supreme Court had not previously addressed: whether the expert valuation used in the judicial review of the squeeze-out consideration may incorporate a size premium—an adjustment to the discount rate that reduces the resulting valuation of the business and, consequently, the consideration payable to shareholders.

The Supreme Court held that, where fair consideration under Section 390 of the Czech Business Corporations Act is determined using an income-based valuation of the company’s business, a size premium may be included in the discount rate where justified. The Court emphasised that omitting the premium in such circumstances would give minority shareholders an economically unjustifiable payout at the majority shareholder’s expense. The resulting consideration could therefore no longer be regarded as fair and reasonable.

The long-awaited decision resolves years of uncertainty over a key valuation issue and will have implications for numerous ongoing squeeze-out disputes across the Czech Republic. It also reconciles divergent approaches taken by the Czech high courts, providing a consistent judicial position on the issue.

KŠB’s team advising at various stages of the proceedings included Radka Felgrová, Filip Buchta, Vlastimil Pihera, Pavel Dejl and Petr Kasík.

“This ruling is a major milestone, bringing clarity to one of the most contentious issues in business valuations for minority shareholder squeeze-outs. It also underscores KŠB’s longstanding role at the forefront of shaping Czech corporate case law,” said Radka Felgrová.

The judgment adds to KŠB’s long track record of landmark corporate matters, which include the first major acquisition in post-1989 Czechoslovakia (Glaverbel), the first “quasi-squeeze-out” (Českomoravský cement), a corporate spin-off for PPF, and advice to O2 Czech Republic on the spin-off that created CETIN. More recently, the firm advised PPF on its cross-border conversion.

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