A successful outcome for our clients in the Frou-Frou v. Muskita appeals provides important guidance on minority shareholder protection and the evidence needed to challenge takeover consideration.
On 27 October 2026, the Cyprus Court of Appeal delivered its unanimous judgment in the consolidated Civil Appeals 391/2019 and 421/2019, arising from the compulsory acquisition of minority shareholdings in Muskita Aluminium Industries Plc (MAI). The Court dismissed the minority shareholders’ appeal and allowed the defendants’ appeal in part, setting aside the nominal damages awarded at first instance and dismissing the shareholders’ action.
Our firm represented the defendants, including the three offerors. The decision addresses a commercially significant question: when can a dissenting shareholder challenge a squeeze-out price that benefits from a presumption of fairness?
The dispute
Following a mandatory public offer in 2011, the offerors held 95.74% of MAI’s issued shares. They subsequently exercised their statutory squeeze-out rights, acquiring the remaining shares for €0.84 per share. Four dissenting shareholders (Frou-Frou), holding 657,500 shares between them, brought proceedings claiming that the fair price was at least €2.155 per share. They claimed the difference.
At first instance, the Court rejected the valuation evidence advanced by the Frou-Frou but nevertheless concluded that MAI’s goodwill had not been reflected in the consideration. Although unable to quantify any resulting loss, it awarded each claimant €50 in nominal damages against the three offerors. Both sides appealed.
The presumed fair price and the limited right to challenge it
Neither the Takeover Bids Law of 2007 (Law 41(I)/2007), which implements Directive 2004/25/EC of the European Parliament and of the Council on takeover bids, nor the relevant Directive of 2007 on the Content of the Offer Document issued by the Cyprus Securities and Exchange Commission (CySEC) obliged the offerors or MAI to make any valuation of the fair price.
Section 4(1)(k)(i) of the Directive of 2007 merely obliged the offerors to include in their Offer Document (a) the middle market quotations for the securities to be acquired, and in the case of a securities exchange offer, securities offered, for the first business day in each of the six (6) months immediately before the offeror’s announcement to make a bid, as well as the middle market quotation of the said securities for the last business day that precedes the announcement and (b) a comparison of the running value of the consideration of the bid and the middle market quotation of the offeree company securities at the dates set in above.
It is Section 18(1) (Determination of fair consideration), which transposed the first subparagraph of Article 5(4), that sets the offer consideration: at least the highest price paid or agreed by the offeror, or persons acting in concert with it, for the relevant securities during the preceding 12 months. Then, for squeeze-outs, following mandatory bids at this price, the third subparagraph Article 15(5) of the Directive presumes the offer consideration to be fair. Crucially, that presumption is rebuttable.
The Court of Appeal, whilst it confirmed that shareholders retain the right to challenge the consideration under section 36(7), they must do so, though, within the applicable EU framework.
The Court drew guidance from the Court of Justice of the European Union’s decision in YO v SVEMA TRADE d.o.o., Case C-567/24, delivered on 27 November 2025, alongside Euromin Holdings (Cyprus), Case C-735/19. A challenge must engage the existence of appropriate circumstances and objective valuation criteria, both contemplated in the second subparagraph of Article 5(4), rather than invite an unrestricted reassessment of the company’s value.
Those circumstances include market manipulation, exceptional events affecting market prices and where the highest price was set in order to enable a company in difficulty to be rescued. The Directive also identifies objective valuation criteria generally used in financial analysis, for example the average market value over a particular period, the break-up value of the company or other objective valuation criteria generally used in financial analysis.
Cyprus decided not to confer the relevant price-adjustment powers on CySEC. This did not remove, however, the shareholders’ ability to challenge the price through the courts. However, the above examples in the second subparagraph of Article 5(4) of circumstances where an adjustment of the price offered in a mandatory takeover bid is warranted and the criteria to be applied in such circumstances, indicate what may be shown in order to rebut the presumption set out in the third subparagraph of Article 15(5) (par. 47 of the decision in YO).
Goodwill and the limits of the evidence
Although it dismissed their claim for a much higher price than €0.84, the District Court awarded, nevertheless, to the plaintiffs nominal damages of €50 against each one of the three offerors.
The reason was that, although it was of the view that the price of €0.84 was not fair because this value did not include MAI’s goodwill and reflected only its net asset value, the District Court, for reasons which the Court of Appeal repeated in its judgment and upheld, was not prepared to rely on the discounted cash flow and EBITDA-based valuations that the plaintiffs’ experts presented in order to substantiate their claim. Various of the assumptions, on which they were based, were successfully challenged.
More importantly, however, in dealing with the matter of the internally generated goodwill of a company, which is inherently included in such discounted cash flow and EBITDA-based valuations, the Court of Appeal held that such valuations were of subjective rather than objective nature and this was not warranted by the second subparagraph of Article 5(4) of the Directive. That meant that the rebuttal of the presumption with the use of subjective criteria was not permissible and, therefore, the first-instance conclusion that the price of €0.84 was unfair and the award of nominal damages was unsafe and had to be overturned.
Why the decision matters
For offerors, boards and investors, the decision reinforces the importance of distinguishing statutory fair consideration from a competing estimate of business value. Minority shareholders retain a meaningful avenue of challenge, but an alternative valuation must be supported by reliable evidence and a legally appropriate objective basis for displacing the price that is presumed to be fair by reason of the fact that it was equal to or higher than the highest price paid for the same securities by the offeror, or by persons acting in concert with him/her, over a period of 12 months before the take-over bid and also because his offer was accepted by so many of the minority shareholders that enabled him to exceed the minimum 90% statutory threshold and exercise thereby his squeeze-out rights over the remaining shareholders.
For our clients, the result was the dismissal of the action, the reversal of the nominal damages award and an award of costs. The appeals illustrate the importance of combining rigorous scrutiny of financial evidence with a clear command of the domestic and EU takeover framework.
We acknowledge the valuable contribution of George Middleton and Levon Arakelian of Chryssafinis & Polyviou LLC, who appeared alongside us before the Court of Appeal for our common clients.
For more information on this case please speak with Demetris Araouzos (demetris.araouzos@demetriades.com) or any of your usual contacts at Chrysses Demetriades & Co. LLC.