In the matter of Asciano Limited

[2015] NSWSC 1548

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Asciano Limited [2015] NSWSC 1548
Hearing dates:	29 September 2015
Date of orders:	29 September 2015
Decision date:	29 September 2015
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Orders made convening scheme meeting and approving (subject to amendments) explanatory statement.
Catchwords:	CORPORATIONS – arrangements and reconstructions – schemes of arrangement or compromise – application for order convening meeting of members to consider scheme of arrangement – whether scheme could be approved – whether scheme fair and reasonable – whether explanatory statement fairly puts scheme – where practical effect of deemed warranty as to title by each shareholder not sufficiently explained – where explanatory statement does not include statement of registration with ASIC – where notice to shareholders of second hearing and right to appear to oppose scheme not sufficiently prominent – where advantages and disadvantages of scheme explained in enormous detail.
Legislation Cited:	(CTH) Corporations Act 2001, s 411, s 411(2), s 412(6) (NSW) Companies Act 1961
Category:	Principal judgment
Parties:	Asciano Limited (ACN 123 652 862) (plaintiff) Brookfield Infrastructure Partners Limited as general partner of Brookfield Infrastructure Partners LP (interested party)
Representation:	Counsel: N J Young QC w I J W Ahmed (plaintiff) P M Wood (Brookfield)   Solicitors: King & Wood Mallesons (plaintiff) Herbert Smith Freehills (Brookfield)
File Number(s):	2015/249906

Judgment (ex tempore)

1. HIS HONOUR: By originating process filed on 26 August 2015, the plaintiff Asciano Limited, a company registered under the (NSW) Companies Act 1961 and thus a Part 5.1 body, applies pursuant to (CTH) Corporations Act 2001, s 411, for orders for the convening of a meeting of its members to consider and vote on a proposed Scheme of Arrangement between it and its members whereby all the shares in Asciano will be acquired by Brookfield Infrastructure Partners LP in consideration of which Asciano shareholders would receive, for each share, either cash in the amount of AU$6.9439 and 0.0387 Chess depository interests (“CDIs”) in Brookfield Infrastructure or, at their election, a total cash consideration of AU$9.1507, or a total consideration in CDIs up to that value.

2. At the first court hearing of an application such as this under s 411, the Court's essential role is to be satisfied that the Scheme is one which could, if approved at the meeting and unopposed at the second hearing, be approved by the Court, and that the explanatory statement contains the requisite information and fairly puts the Scheme, its advantages and disadvantages to the members.

3. On such an application, there is necessarily a question as to whether the Scheme is a commercially fair one, although it is important to appreciate that it is not the Court's role to second-guess the commercial judgment of the directors nor to make a judgment in place of that which the shareholders will be asked to make. That said, if the Scheme is self-evidently not fair or reasonable, the Court may be reluctant to order the convening of a meeting. On that question, usually the report of an independent expert is an important consideration.

4. In this case, the independent expert has concluded that the Scheme is both fair – in the sense that the consideration is appropriate to the underlying value of the interests to be acquired, having regard on the other side of the ledger to the value of the scrip to be offered – and reasonable. Where the consideration is fair, it is necessarily also reasonable. Accordingly, the independent expert concludes that the Scheme is in the interests of the members, in the absence of a superior proposal.

5. That conclusion is supported by analysis of the relationship of the Scheme consideration to EBITDA and EBITA, revealing relatively high multiples in both cases, and to the trading history of shares in Asciano, it appearing that the announcement of the Scheme has produced a premium of about 35% to 40% over the price at which the shares were previously trading. I am satisfied that there is no apparent commercial reason why the Scheme could not be put to shareholders as a fair and reasonable one.

6. The Scheme contains many of the features commonly referred to in applications of this kind. In particular, there are exclusionary provisions by way of a no-shop clause and a no-talk clause. The no-shop clause is for an appropriately limited reasonable period, and the no-talk clause is subject to a fiduciary carve-out. Both are disclosed in the Scheme booklet. They are well within ordinary tolerances so far as that type of provision is concerned in this setting. The Scheme also includes a break fee, which is also within ordinary tolerances.

7. The Scheme contains a deemed warranty as to title by each shareholder, of the kind customarily included. Where the existence of the deemed warranty is disclosed in the explanatory statement, its practical effect on shareholders is not sufficiently explained, and the explanatory statement should be amended to explain the practical impact of that clause on a shareholder.

8. So far as concerns the explanatory statement, a copy of the draft was lodged with ASIC on 8 September 2015, more than the 14 day period required by s 411(2). ASIC has provided its usual letter, dated 28 September 2015, advising that it does not currently propose to appear to make submissions or intervene to oppose the Scheme at this first hearing based on its examination of the terms of the Scheme in the draft explanatory statement. It has made a number of suggestions in respect of the draft explanatory statement, which have been incorporated in amended versions of it. The explanatory statement has been the subject of a rigorous verification process on the part of both Asciano and Brookfield. Subject to the observation I have already made about the deemed warranty and to the reservations which I will now express, I am satisfied that it fairly puts the Scheme, its advantages and disadvantages to members.

9. Those reservations, in respect of which the explanatory statement should be amended, are as follows:

1. The “Important Notices” on the first page do not include a statement that the explanatory statement has been registered by ASIC, which is a requirement of s 412(6) and is customarily included in the important notices.

2. As I have emphasised on many occasions, the explanatory statement is effectively the only notice to a shareholder of the second Court hearing and their right to appear at that hearing and oppose the Scheme. While the “Important Notices” do include reference to that right and to the second Court hearing in the second column, they appear in very small print and without the prominence that a notice of Court hearing is entitled to receive. The notice of the Court hearing should appear under a separate heading and emboldened, so as to draw to the attention of the recipients of the Scheme booklets the date, time and place of that hearing and their right to offer and, if they wish, oppose approval of the scheme.

3. It is rightly said that there are complexities in this Scheme principally because of the nature of the scrip consideration and the election which a shareholder has between the various forms of consideration. The Scheme booklet does an admirable job in explaining in comprehensive and enormous detail the various aspects of the Scheme’s advantages and disadvantages. The difficulty of this is that it does so to such an extent and so extensively as to make reading – and, more importantly, comprehending – the consequences an almost super-human task for an ordinary shareholder. In my view, a short synopsis should be included and given prominence in an early part of the booklet summarising:

1. the bare bones of the Scheme, essentially being that it involves the acquisition of the shares of all members by Brookfield,

2. the consideration and the options of a shareholder as to the three ways in which consideration may be taken, and

3. the essential features of the scrip consideration, which might be sufficiently addressed by observing that the CDIs are very different in nature to shares in Asciano with quite different rights which are explained in more detail in section 7 of the Scheme booklet.

10. The plaintiff also seeks orders of a not unusual kind in respect of formal requirements for the Scheme meeting and notification. Subject to amendments to the Scheme booklet to the effect of those that I have indicated, I would make orders in accordance with the draft order that has been provided. In order to enable those matters to be attended to, I will stand the matter down until 3.45, or such earlier time as the parties may wish to approach the Court.

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Decision last updated: 19 October 2015