Equigold NL, In the matter of Equigold NL
[2008] FCA 825
•23 April 2008
FEDERAL COURT OF AUSTRALIA
Equigold NL, In the matter of Equigold NL [2008] FCA 825
IN THE MATTER OF EQUIGOLD NL, EQUIGOLD NL
NSD544 OF 2008
EMMETT J
23 APRIL 2008
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD544 OF 2008
IN THE MATTER OF EQUIGOLD NL ABN 42 060 235 145
EQUIGOLD NL ABN 42 060 235 145
Plaintiff
JUDGE:
EMMETT J
DATE OF ORDER:
23 APRIL 2008
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth):
(a)Equigold NL ABN 42 060 235 145 (Equigold) convene a meeting (Scheme Meeting) of the holders of ordinary shares in Equigold, other than the holders of Excluded Shares in respect of those Excluded Shares (Equigold Shareholders), for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between Equigold and Equigold Shareholders (Scheme), being the scheme substantially in the form of the draft contained at annexure B to the scheme booklet containing the explanatory statement in relation to the Scheme, being Exhibit “1” in these proceedings (Scheme Booklet).
(b)The Scheme Meeting be held at 11.00am (Australian Western Standard Time) on 30 May 2008 at the Duxton Hotel, 1 St Georges Terrace Perth, Western Australia.
(c)The Chairperson of the Scheme Meeting be Nicola Enrico Antonio Giorgetta and in his absence Mark John Clark.
(d)The Chairperson appointed to the Scheme Meeting has the power to adjourn the Scheme Meeting in his absolute discretion.
(e)All voting at the Scheme Meeting be by poll as declared by the Chairperson.
(f)At the Scheme Meeting, a person will be entitled to one vote for each Equigold share that the person is registered as holding at 7pm (Australian Western Standard Time) on 28 May 2008.
(g)The explanatory statement in the Scheme Booklet for the Scheme be approved for distribution to Equigold Shareholders.
(h)There be dispatched to each Equigold Shareholder:
(i)a document substantially in the form of the Scheme Booklet;
(ii)a proxy form for the Scheme Meeting; and
(iii)a reply paid (for use in Australia only) envelope addressed to Computershare Investor Services Pty Limited for the return of the proxy form,
in the case of each Equigold Shareholder who has a registered address in Australia, by prepaid post and, in the case of each Equigold Shareholder who has a registered address outside Australia, by prepaid airmail or air courier, in each case addressed to the relevant address set out in the Equigold register of members.
(i)The time by which the Equigold Shareholders must return their proxy forms for the Scheme Meeting be 11.00am (Australian Western Standard Time) on 28 May 2008.
(j)Equigold place an advertisement in The Australian newspaper, substantially in the form of “Annexure A” to these Orders, on or before 27 May 2008 and Equigold shall otherwise be exempted from compliance with the requirement to publish such notice at least 5 days before the date fixed for hearing of the application pursuant to Rule 3.4(3)(b) of the Federal Court (Corporations) Rules 2000 (Cth).
2Pursuant to section 1319 of the Corporations Act 2001 (Cth), Equigold be exempted from compliance with the requirements of rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) save that regulation 5.6.13 of the Corporations Regulations 2001 (Cth) shall apply to the Equigold Scheme Meeting.
3The proceedings be stood over to 3 June 2008 at 9.30am (Australian Eastern Standard Time) before Justice Emmett for the hearing of any application to approve the Scheme.
4These orders to be entered forthwith.
In these orders, an Excluded Share is a fully paid ordinary share in Equigold held by Lihir Australian Holdings Pty Ltd ACN 121 554 443 as at the record date for the Scheme.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
Annexure A
Equigold NL ABN 42 060 235 145
Notice of hearing to approve compromise or arrangement
TO all the creditors and members of Equigold NL ABN 42 060 235 145 (Equigold).
TAKE NOTICE that at 9.30am (Australian Eastern Standard Time) on 3 June 2008 the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, NSW, 2000 will hear an application by Equigold seeking the approval of an arrangement between Equigold and its members, if agreed to by resolution to be considered by the members of Equigold at a meeting of such members to be held at 11.00am (Australian Western Standard Time) on 30 May 2008 at the Duxton Hotel, 1 St Georges Terrace Perth, Western Australia.
If you wish to oppose the approval of the arrangement, you must file and serve on Equigold a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Equigold at its address for service at least 1 day before the date fixed for the hearing of the application.
The address for service on Equigold is, c/o Corrs Chambers Westgarth, Level 32, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000 (Reference: Stan Lewis).
David Lim
Company Secretary
Equigold NL
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD544 OF 2008
IN THE MATTER OF EQUIGOLD NL ABN 42 060 235 145
EQUIGOLD NL ABN 42 060 235 145
Plaintiff
JUDGE:
EMMETT J
DATE:
23 APRIL 2008
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The plaintiff, Equigold NL (Equigold), seeks an order under s 411(1) of the Corporations Act 2001 (Cth) (the Act) that the Court convene a meeting of Equigold’s members for the purpose of considering and, if thought fit, agreeing to a scheme of arrangement that is to be proposed between Equigold and most of its members (the Scheme).
Equigold is a no-liability public company with headquarters in Perth, Western Australia. Its shares are listed for quotation on the official list of ASX Limited (ASX). Equigold is a profitable gold mining company with current production at projects situated at Mount Rawden in Queensland and Kirkalocka in Western Australia. It is also currently developing an 85 per cent owned deposit in Bonikro, on the Ivory Coast in West Africa. Commissioning of the processing plant for that project is expected to commence in June 2008 and production is scheduled to commence in July 2008.
The proposal under the Scheme is that the holders of ordinary shares in Equigold, other than excluded shares, being shares already held by Lihir Australian Holdings Pty Limited (the Lihir Acquirer), will transfer their shares to the Lihir Acquirer. The Lihir Acquirer is a wholly owned subsidiary of Lihir Gold Limited (LGL). LGL is ranked amongst the largest gold producers in the world. It is the owner and developer of one of the world’s largest open cut gold mines and processing facilities on the island of Lihir, which is located some 900 kilometres north-east of Port Moresby in Papua New Guinea. LGL is also developing an underground gold mine in Ballarat, Victoria.
LGL has its registered office in Port Moresby, Papua New Guinea, and has a corporate office in Brisbane, Queensland. It is listed on ASX, on the Port Moresby Stock Exchange Limited (PMSoX) and on the Toronto Stock Exchange (TSX). It also has American Depository Receipts listed on the National Association of Securities Dealers Automated Quotation System (NASDAQ) in the United States.
LGL has four substantial shareholders who own respectively 14.30%, 12.45%, 11.87% and 5.02% of its issued capital. Approximately 36% of LGL’s shares are owned by shareholders based in the United States. Approximately 30% are held by Australian shareholders. LGL also has shareholders in Europe, Asia and Papua New Guinea.
Under the Scheme, each Equigold shareholder, other than the holders of excluded shares, will receive, as consideration for the transfer of their shares, 33 new shares in LGL for every 25 Equigold shares held by that shareholder. Based on the share price of LGL shares on ASX on 19 March 2008, being the last trading day before the announcement of the proposal, the implied value of the scheme consideration was $5.33 per Equigold share. That represents a premium of 24% over the closing price of Equigold shares on ASX on that date of $4.04. The proposed new shares in LGL to be issued as consideration under the Scheme will rank equally with the existing issued shares of LGL. The effect of the Scheme will be for Equigold to become a wholly owned subsidiary of LGL and listing of its shares on ASX will cease.
LGL, the Lihir Acquirer and Equigold entered into a Merger Implementation Agreement on 20 March 2008. Under clause 2.1 of the Merger Implementation Agreement, the Scheme will not become effective unless certain conditions precedent are satisfied or waived. The conditions precedent are not exceptional. They relate to such matters as regulatory approval and the non-occurrence of adverse changes in the circumstances of the parties. Some conditions can be waived by Equigold. Other conditions can be waived by LGL and the Lihir Acquirer. Provision is made for the Court to be provided with a certificate from appropriate officers of the parties concerning satisfaction or waiver of the conditions prior to the Court’s being asked to approve the Scheme, assuming the Court convenes the meeting and the members of Equigold agree to the Scheme.
The Merger Implementation Agreement imposes obligations on the parties to take all necessary steps to implement the Scheme in accordance with a timetable which is specified in the Agreement. The Agreement also contains specific obligations on the part of the parties designed to ensure that the implementation of the Scheme is not frustrated. Provision is made for termination in certain circumstances.
There are two provisions of the Merger Implementation Agreement that are of significance. The first is clause 12, which deals with exclusivity of dealings between Equigold on the one hand and LGL on the other. Equigold agrees that it must ensure that neither it nor any of its Related Parties directly or indirectly solicits, invites, encourages or initiates any enquiries, negotiations or discussions, or communicates any intention to do any of those things, with a view to obtaining any expression of interest, offer or proposal from any other person in relation to a Competing Transaction.
“Competing Transaction” is a defined term in the Agreement. In general terms, it means a transaction that would involve a person other than LGL or a related company of LGL acquiring a substantial part of the share capital or assets of Equigold. Clause 12 also provides that Equigold will notify Lihir Acquirer if it is approached by any person with a view to engaging in a Competing Transaction. Lihir Acquirer is given what is, in effect, a right of first refusal in relation to any such third party approach. There is an exception to the prohibitions to the extent that they are not to operate if their effect would be to involve a breach of fiduciary or statutory duties owed by directors of Equigold or if their effect would involve a contravention of law.
The second significant provision can be found at clause 13 of the Merger Implementation Agreement. It deals with a proposed break fee. Clause 13.1 provides that, if any director of Equigold makes a public statement indicating lack of support for the proposed Scheme or fails to recommend the Scheme, other than because of the termination of the agreement or failure on the part of an independent expert to recommend the Scheme, Equigold must pay to the Lihir Acquirer a break fee in the sum of $11,300,000. In addition, under clause 13.2, if the Scheme does not become effective as a direct result of the failure by LGL or the Lihir Acquirer to perform or satisfy any of its material obligations under the agreement, LGL must pay to Equigold a break fee of the same amount.
The parties acknowledge in the Merger Implementation Agreement that each of the parties will incur significant costs, expenses, outgoings and losses if the Scheme is not successful and Lihir Acquirer does not acquire the Equigold shares. They also recognise that it is not possible to ascertain those costs accurately and that the break fee represents a genuine and reasonable pre-estimate of the internal/external advisory and financial costs that each party will incur in relation to the Scheme.
The Scheme provides a mechanism for the transfer to the Lihir Acquirer of all of the Equigold shares that are not already held by it. It also provides for LGL to issue to each shareholder affected by the Scheme the number of LGL shares comprised in the consideration for the transfer of the Equigold shares. The mechanism contemplated by the Scheme provides for the transfer to become effective only upon the allotment of the new LGL shares. By the Scheme, each scheme shareholder will warrant that the shareholders shares are free from an encumbrance and that the shareholder has the power and capacity to sell and transfer the shares to the Lihir Acquirer.
LGL has also executed a deed poll in favour of Equigold shareholders, whereby it covenants to procure the allotment to scheme shareholders of the new shares in LGL to which they will become entitled under the Scheme.
An Explanatory Memorandum has been prepared in draft form. I have considered the Explanatory Memorandum in detail. It contains adequate disclosure of the terms of the Scheme and of the exclusivity arrangements and the arrangements concerning the break fee. Since the consideration consists of shares in LGL, the Explanatory Memorandum contains detailed information concerning LGL and its subsidiaries.
In addition, the Explanatory Memorandum contains reports from Corrs Chambers Westgarth providing a general statement of the Australian income tax, goods and services tax and stamp duty consequences for Equigold shareholders who hold their Equigold shares on capital account and who dispose of them to Lihir Acquirer pursuant to the Scheme. Mr Jonathon Leek, a partner in the taxation practice group of Corrs Chambers Westgarth, has confirmed that the opinions expressed in the report are opinions that he held at the date of the report and that he is not aware of any facts, matters or circumstance that would cause him to change the opinions expressed in the report.
In addition, KPMG Corporate Finance (Aust) Pty Limited (KPMG) has provided a report on the question of whether the proposed Scheme is in the best interest of Equigold shareholders. In the report KPMG express the opinion that the Scheme is, on balance, in the best interest of Equigold shareholders, in that they will be better off if the Scheme proceeds than if it does not proceed.
In their report, KPMG indicate various key considerations that they have taken into account in forming their opinion, including the following:
1.the assessed value of an ordinary share in Equigold, assuming 100 per cent ownership, compared with the consideration to be received under the Scheme,
2.the likely level of synergies and cost savings unique to LGL,
3.the liquidity of the market for Equigold and LGL shares and the assessed value of an ordinary share in LGL, based on share trading on ASX,
4.the likelihood of an alternative offer emerging for Equigold, and
5.other advantages and disadvantages that may impact upon the shareholders if the Scheme proceeds.
KPMG’s opinion is that the share consideration to be received, of 33 LGL shares for every 25 Equigold shares, is fair. KPMG assessed the value of Equigold as a whole to lie in the range of $456.0 million to $642.3 million with a preferred value of $560.0 million, which equates to approximately $2.15 to $3.02 per Equigold share with a preferred value of $2.64 per share.
Based on the preferred value, adjusted to include a 50% premium, the value of an LGL share should be at least $2.99 in order to ensure that Equigold shareholders are not financially disadvantaged. KPMG considered that it is reasonable to expect that LGL shares are likely to trade in the immediate future at a price greater than $2.99, all other things being equal. Accordingly, they consider that the share consideration is fair to Equigold shareholders.
KPMG had regard to the premiums over historical traded prices for Equigold shares implied by the share consideration. KPMG considered that the premiums are reasonable, having regard to the range typically paid in acquisitions within the Australian market. KPMG also had regard to the fact that scheme participants will, in general, retain an interest in the development assets of Equigold, albeit a diluted interest. In addition, they will share an interest in the existing assets of LGL.
Mr Duncan Calder, a director of KPMG, has confirmed that the opinions expressed in the report are opinions that he held as at the date of the report and that he has not become aware of any facts, matters, or circumstances that would cause him to change the opinions expressed in the report.
The Scheme provides for a different treatment for ineligible overseas shareholders, being shareholders who reside outside Australia or New Zealand and who cannot receive an allotment of shares in LGL. Rather than issue shares in LGL to those shareholders, the relevant shares will be allotted to a nominee who will sell the shares on ASX and distribute the proceeds pro rata to the ineligible overseas shareholders.
The factual information contained in the Explanatory Memorandum has been verified by fairly detailed processes of examination and diligent reporting. On the basis of the evidence concerning those examinations, there is no reason to doubt the veracity and correctness of factual information contained in the Explanatory Memorandum.
The break fee, to which I have referred, does not become payable if the only reason why the Scheme is not implemented is that the shareholders do not agree to the Scheme or the Court does not approve it. The break fee is less than 1% of the implied scheme consideration. In the circumstances, the arrangement concerning the break fee should not stand in the way of the Court’s exercise of its discretion to convene the meeting as asked.
The Chairman of Equigold, Mr Nicola Giorgetta, has procured the grant of an option to LGL to acquire shares in Equigold held beneficially by the Giorgetta Family Trust. The consideration payable upon the exercise of the option is adjustable to ensure that there is no benefit provided to the Chairman over and above the benefit that might flow to all other Equigold shareholders.
The proposed Explanatory Memorandum, including the terms of the Scheme, has been provided to Australian Securities and Investments Commission (ASIC) in draft form. By letter of 22 April 2008 addressed to Equigold’s solicitors, ASIC has stated that it does not currently propose to appear to make submissions or to intervene to oppose the proposed Scheme on the basis of the draft Explanatory Memorandum.
I am satisfied that all of the requirements of the Act and the regulations, concerning the form of the Explanatory Memorandum, have been complied with. Accordingly, I propose to accede to the application by Equigold to convene a meeting for the purpose of considering and, if thought fit, agreeing to the proposed Scheme.
I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 17 June 2008
Counsel for the Plaintiff: Mr I Jackman SC Solicitor for the Plaintiff: Corrs Chambers Westgarth
Date of Hearing: 23 April 2008 Date of Judgment: 23 April 2008
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