Parker & Parsley Petroleum Australia P/L v Gantry Acquisition Corporation

[1994] FCA 410

I.

4-10 (9Y

JUDGMENT NO. ...U..eeIWeea aasaee**maa.

IN T m	FEDERAL COURT OF AUSTRALIA	)
1

NEW SOUTH WALES DISTRICT REGISTRY	) No G 3314 of 1994
1
GENERAL DIVISION	1
)

BETWEEN:  P A R K E R & P A R S L E Y PETROLEUM AUSTRALIA PTY LIMITED (ACN 064 589 180)

Applicant

AND:  GANTRY ACOUISITION CORP.
(ARBN 065 235 323)

Respondent

Caram-	Davies J.
Date:	28 June 1994
Place.	Sydney

RECEIVED

MINUTES OF ORDER

m:	Settlement and entry of orders is dealt with in Order 36 of the
Federal Court Rules.

THE COURT ORDERS THAT:

1.        The respondent be restrained from sending to any shareholder of Bridge Oil Limited its Part A statement which was registered on 23 June 1994 and from sending, issuing or otherwise proceeding with any offer to which the Part A statement relates.

2.         The respondent pay the costs of the proceedings.

IN THE FEDERAL COURT OF AUSmALIA 1 1

Y	NEW SO	)	) No G 3314 of 1994
1

GENERAL	DIVISION	1
1

BETWEEN:

PETROLEUM AUSTRALIA PTY

LIMITED (ACN 064 589 180)

Applicant

GANTRY ACOUISITION CORP.

(ARBN 065 235 323)

Respondent

m:	Davies J.
Date:	28 June 1994
Place:	Sydney

REASONS FOR JUDGMENT

This applicat~on, brought under s.1324 of the Coroorations Law, seeks an

injunction to restrain the issue to shareholders of Bridge Oil Limited of a Part A
statement.

The offeror is Gantry Acquisition Corporation ("Gantry") which is part of a large group centred in the United States of America, the business of which revolves around gas and oil exploration, production, and transportation. The applicant is Parker & Parsley Petroleum Australia Pty Limited ("Parker & Parsley"), which also is part of a large group

centred in the United States. Parker & Parsley has already issued a Part A statement to the shareholders of Bridge Oil Limited and now, I am informed, holds 19% approximately of the shares issued in that company. Bndge Oil Limited is an Australian company which has oil and gas interests m Australia and in many other parts of the world including Argentina. Its principal subsidiary is Bridge Oil USA Limited. The assets in the United States have a value of 50 to 60% of the total assets of the Bridge Oil Group.

The application alleges that Gantry's Part A statement does not comply with the

requirements of s.750 of the Corporations Law.

As the application is an urgent one and should be disposed of immediately, I

refused a request by counsel for Parker & Parsley to require compliance with notices to produce which had been served on persons who held documents which related to and

threw light on matters stated in the Part A statement which Gantry proposes to issue. I considered that, having regard to the time ava~lable, no useful forensic purpose would

be served by pursuing those notices to produce and that indeed, in dealing with an urgent

Gantry Group should be made available to the persons acting for Parker & Parsley.

application such as this, it was wrong to order that material that was confidential to the

Gantry has announced in its Part A statement that its offer is conditional upon acceptance by 90% of the shareholders of Bridge Oil and that it intends to proceed to compulsory acquisition of all outstanding shares should it be entitled to do so. However, as Gantry has the right to waive the 90% condition, I must approach the Part A statement on the footing that the offer may be considered by shareholders who may have to decide whether to accept the offer or to remain as shareholders.

A Part A statement need not be expressed in technical terms or be excessively

long, but it should be sufficient to ensure that offerees receive all the information that

is necessary for them to make an informed judgment on the merits of the offer. Clause 17 of s.750 requires the disclosure of "any other information material to the rnaldng of

a decision by the offeree". Information which is necessary to enable an offeree to make

an informed assessment of the offer is such information.

Clause 11 of s.750 provides:-

"11. If the conslderation for the aqulsition of the shares to which the takeover offers

relate or for the acquls~tion of any shares, rcnounceable options or convertible notes referred to in Clause 9 is to bc satisfied in whole or in part by the payment of cash, the statement shall set out:

(a)	if the offeror IS to provlde some or all of the cash from the offeror's own funds - particulars sufticlent to Identify the cash amounts held by the offeror for or in respect of payment of the conslderation; and
@)	offeror's own funds

if the offeror is not to pronde aU of the cash, or a not to pronde any of it, from the

(I)	parllculars suffincnt to identify the other person who is, or cach of the other persons who are, to pronde, whether dircclly or indirectly, some or all of the cash from that person's or those persons' own funds; and
(11)	particulars of the arrangements by whlch that cash will be provided by that other person or thosc other persons."

The Part A statement contains these provisions:-

"9.3	Gantry will obtaln all of thc funds necessary to pay the consideration for the aquisit~on of the Bndge 011 sham to whch the Offers relate through a capital contribution from Gantry Corp. Gantry Corp. will obtain such funds from the
issue of stock in Gantry Corp. to JEDI.
JEDI bas agreed to subsmbe for shares of stock in Gantry Corp., m a total amount equal
to USS270.4 million, provided that the Offers have been fulfied, but subject to no other conditions. JEDI intends to obla~n the funds neccssary to subscribe for Gantry Corp shares through borrowings of approx~mately US0107 mlUlon under an existlng credlt facility wlth Chase Manhattan Bank ('JEDI's Clmc h') and borrowings of approxlmately US0163 4 mllllon from ECC (the 'General Partner Loan').
The General Partner Lban is subject to no conditions precedent to drawdown and wll be advanccd using the proceeds of borrowings by ECC from Enron under a loan which
IS subject to no condltlons precedent to drawdown. Enron wlll borrow such funds under
an existing credlt facllity with Chase Manhattan Bank ('Enmn's Chasc Loan'). There are no conditions precedent to drawdowns under JEDI's Chase Loan or under Enron's Chase Loan other than formal matters all of wh~ch are capable of fulfilment by JEDI and Enron respectively.
9.4	Amounts expressed in US dollars III paragraph 9.3 are sufficient to cover the manmum consideration of AUDS342.4 mill~on referred to m paragraph 9.2 even if there was an adverse exchange rate movement of approxlmately 7%:

Counsel for Parker and Parsley submitted that this disclosure was inadequate as

"part~culars of the arrangement" were not provided, that is, particulars were not given as to whether the arrangements were oral or in writing or to be implied and dates were not stated.

However, in my opinion, the paragraphs sufficiently descr~be the general nature

of the arrangements which Gantry has m place. If there is any breach of cl.11, it is I think, a trivial one and it would not justify the granting of an injunction. I approach this matter of accounts in accordance with the reasons which were stated in Australian

Consolidated Investments Limited v Rossinlrton Holdings Ptv Limited (1992) 35 FCR 226.

Clause 20 of s.750 provides:-

"(l)	The statement shaU set out particulars of the offeror's lntentlons regarding:
(a)	the continuation of the buslness of the target company,
@)	any major changes to be made to the business of the target company, including any
redeployment of the fixed assets of the target company, and
(c)	the Iuture employment of the present employees of the target company.
Without limiting the generality of subclause (l), if the offeror has not made a decision
on a matter referred to in paragraph (])(a), (b) or (c) but is consdering a possible course of	(2)
action, or 2 or more possible courscs of actlon, in relat~on to that matter, the statement shaU set out that Fact and specily the course of actlon or courses of actlon concerned and the reason why
the offeror has not made a decis~on on the matter."

The Part A statement provides inter a1ia:-

Gantry is presently wholly owned by Gantry Corp The principal activities of Gantry

"4.2

Corp are to hold the ~ssued cap~tal of Gantry.

Gantry Corp has entered into an agreement wth five incumbent executive officers of BOUSA, George G Fenton, Tlmothy R Dunn, Robert W Oliver, Tom C Landford and Mark D Krahenbuhl (the 'Ekcative Group'), pursuant to the term? of whsh, upon successful completion of the Offen, the members of the Executive Group will become exccutlve officers of Gantry Corp ent~tled to representation on Gantry Corp's board of directors and to the benefits of three-year employment agrcemcnts. The Executive Group wll then assume posltlons substantially slmllar to those held currently w t h BOUSA and with substantially equlvalcnt salar~es. Thc agreement further provides that the Executive Group is obligated to purchase, upon suoccssful rompletion of the Offers, shares of common stock of Gantry Corp (rcpresenting approximately $1.8% of the lssued capital) for cons~derat~on totalling USS1 1 million and conslstlng orat least USS900,000 cash, with the remaining consideration to be represcnted by promissory notes payable to Gantry Corp. The shares so aqulred will be subject to the terms of the stockholders' agreement limiting share transfers, prowdmg Gantry Corp with certam preferent~al rights to shares held for sale by the members of the Executive Group and obl~gating Gantry Corp to purchase the shares of those mcmbers at ratcs calculated in accordance with a prescrlbcd formula upon tcrn~inatlon or their employment. The employment arrangcments also

prowdc for the ~mplcmcntat~on	of a stock option plan and certaln severance payments
for the benclit of the Executive Group	Under the stock option plan, the Executive
Group could acquire up to an addit~onal	5.2% of Gantry Corp's issued capital

George G Fcnton has taken a temporary leave of absence from his position as an executive of BOUSA.

15.1 Gantry intends to proceed to compulsory acqu~sition of all outstandmg Bridgc Oil Shares

immed~ately upon it becoming entitled to do so as a consequence of acceptances of the

. - -

Offers.

Gantry intends ultimately to concentrate its a~tlvitics to within the USA. Consequently, Gantry intends to cause Bndge 011 to divest its non-US operations and assets at an appropriate time and on the most favourable terms. Options under consideration are sales of assets in whole or in part, and a possible Austrahan public offering of all or a portion of the non-US operations and assets. Gantry has not made a decision in respect

of those options because it IS not yet In possession of sufficient informat~on necessary to

make such a decision. Any dccis~ons in rclation to the non-US operations and assets would be determined after Gantry has examined those operations and assets and further cnnsidered its posltion and will be evaluated in light of prevailing market conditions. Gantry intends that the non-US operations and assets would continue to be managed in the best long term interests of those operations and assets.

Gantry Intends to cause BOUSA to sell to Cactus Hydrocarbons 111, a l~mited partnership in whlch Enron Cactus 111 Corp. 1s the general partner, a term overriding royalty intercst (a real property merest in leases, ent~tllng the holder to ownersh~p of the 011 and gas in the ground) in its South Texas 011 and gas leases for a purchase pnce of appro~mately

USS60 million.

Gantry has disclosed spec~fic intent~ons in rclatlon to the Executive Group in paragraph

4.2 of th~s Statement.

15.2

Subject to paragraph 15.1, Gantry:

(a)	intends to contlnue the buslncss of Brldge 011 and its subs~diaries;
@)	does not intend to make any major changes to the business of Brldge 011 and its

subsldlaries or to redeploy the Gxed assets of Bndge 011 and its subs~diaries; and

(c) Intends to wntlnue the future employment of the prcsent employees of Bridge

011 and its subs~d~ar~cs."

(d) ...

In connection w t h the confidcntial~ly agreement mcntloned above, and as a further condition to BOUSA provldlng mformatlon to ECC in connection with ECCs renew of BOUSA's operations and assets, BOUSA required ECC, acting as general partner of JEDI, to execute a letter agreement relatlng to employee severance benefits (the %beranee Agroanent') The Sevcrance Agreement provides that if ECC or any of its affil~ates (includ~ng JEDI) was to dlrectly or indirectly acquire the assets of BOUSA or any of its affiliates, then JEDI would be required to provldc specified severance benefits to any employee of BOUSA who was an employee on the date of the acquisition and whose employment by BOUSA (or the purchasing entity) terminated without causewithin spec~fied periods of tlme. The Severance Agreement appl~ed to all employees of BOUSA on the date of any such acquisition, lncludlng thc members of the Executive Group, each of whom has agreed to join Gantry Corp's management team upon the successful

completion of the OfTers. ECC understands tlrat the confident~allty agreement and the Severance Agreement BOUSA required ECC to execute were substantially the same as

the agreements BOUSA rcquired of other mterested parties who desired to conduct a
review of BOUSA's assets and operations.

Pnor to committing to make the Offers, Gantry entered Into the agreement dcscnbed In paragraph 4 2 with the members of the Executive Group and secured the commitment of ihc members of the Executive Group to walve the proviHions of the Severance Agreement (as to them only) upon the successful complet~on of the Offers. All other employees of BOUSA will be entitled to the benefits descr~bed in the Severance Agreement in the event they are terminated as described there~n. Gantry has no plans to cause the termination of any of such employees."

In my opinion, these statements do not comply with c1.20 and are confusing.

Clause 15.1 gives very little information as to the options being considered with respect to the businesses outslde the Unlted States. It is implied in c1.15.1 that the businesses will be sold but nothing is said as to the future of the employees or as to the

period of time during which the break-up will occur. Even with respect to the US

businesses, it is not expressly stated that the five executive officers will continue as the

chief executives of Bridge Oil USA. It is not stated as to what will occur to the

employees of the South Texas field when that asset is sold. It is stated in para 17(d) that

"Gantry has no plans to cause the termmation of any such employees!' But whether this relates to the employees who may be engaged m the South Texas fields is not made clear. The Severance Agreement is highhghted, but it is not clear to which employees it is thought that the Agreement will probably apply. Nor is the temporary leave of

absence of Mr G.G. Fenton clarified in any way. Perhaps Mr Fenton's position is a trivial matter but it is just one of the things that leaves one in doubt after reading this Part A statement.

My major concern is paragraph 15.2. In view of the fact that the non-Australian assets are to be disposed of in due course and that part of the American assets are also to be disposed of, presumably approximately 50% in all of the existing assets of the

Bridge Oil Group, para 15.2 seems to me to be misleading.	If Gantry proposes to break
up and to dispose of 50% of the businesses then that should be stated positively.	A
reading of c1.15.2 would not suggest that that was the case.

It is true that some of the businesses and employees are not directly the businesses and employees of Bridge Oil Limited but of its subsidiary companies. It seems to me that, having regard to the Part A statement as a whole, the interests of those employees and the future of those businesses are relevantly material matters for the purposes of the Part A statement.

Counsel for Parker and Parsley submitted that there was a breach of c1.12 of s.750.

However, in the absence of evidence to the contrary, I am prepared to accept the

statement contained in paragraph 10 of the Part A statement that no prescribed benefit
other than an excluded benefit was given.

Counsel for Parker and Parsley also submitted that there had been a breach of

s.698(2) of the Cornorations Law. However in my opinion, if there has been a breach,
this is not a material matter which need be disclosed in the Part A statement.

For these reasons it seems to me an injunction should issue. The order of the

Court will therefore be that Gantry Acquisition Corp be restrained from sending to any

shareholder of Bridge Oil Limited the Part A statement and from sending, issuing or

otherwise proceeding with an offer to which the Part A statement relates.

The applicant should have the costs of the proceedings.

I certify that this and	receding pages
are a true copy of	for judgment herein of
the Honourable

Associate: S

Date:	28 June 1994
Counsel for the applicant:	S.C. Rares SC
& A.C. Bennett
Solicitors for the applicant:	Mallesons Stephen Jaques
Counsel for the respondent:	P.G. Hely QC
Solicitors for the respondent:	Clayton Utz
Date of hearing:	28 June 1994
Date of judgment:	28 June 1994