Re Dyno Nobel Ltd
[2008] VSC 154
•16 May 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 5469 of 2008
| IN THE MATTER OF DYNO NOBEL LIMITED | Plaintiff |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 April 2008 | |
DATE OF JUDGMENT: | 16 May 2008 | |
CASE MAY BE CITED AS: | Re Dyno Nobel Limited | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 154 | |
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CORPORATIONS – Schemes to effect a takeover – Approval of the distribution of the Scheme Booklet – Expert’s report – Whether offer “fair” where on upper range of valuation the consideration value is less than the target share value – ASIC Regulatory Guide 111 – Takeover bids – Range of values – ASIC RG 111.9, RG 110.10, RG 111.11, RG 111.62 and RG 111.63 – sections 411(1), 412(6) and 412(8) of the Corporations Act 2001 (Cth)
ASC v Marlborough Gold Minds Ltd (1993) 117 CLR 485
FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69
HPAL Limited [2007] FCA 1570
Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213
Re Arthur Yates & Co Ltd (2001) 35 ACSR 758
Re APN News & Media Limited [2007] FCA 770
Re Coles Group Limited (2007) 25 ACLC 1380
Re Coles Group No 2 [2007] VCA 563
Re Investa Properties Limited (2007) 25 ACLC 1186
Re Orion Telecommunications Ltd [2007] FCA 1389
Re Veda Advantage Ltd [2007] FCA 822
Sonodyne International Ltd (1994) 15 ACSR 494
Zenyth Therapeutics Limited v Smith [2006] VSC 437
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J G Santamaria QC with Ms F I Gordon of counsel | Allens Arthur Robinson |
TABLE OF CONTENTS
THE APPLICATION......................................................................................................................... 1
INTRODUCTION.............................................................................................................................. 1
BACKGROUND................................................................................................................................. 2
THE SCHEMES.................................................................................................................................. 2
THE FUNCTION OF THE COURT................................................................................................ 4
THE SCHEME BOOKLET................................................................................................................ 5
OTHER MATTERS TO BE ADDRESSED.................................................................................... 6
THE EXPERT’S REPORT............................................................................................................... 11
HIS HONOUR:
THE APPLICATION
By an originating process dated 3 April 2008, the plaintiff, Dyno Nobel Limited (“Dyno Nobel”) applies pursuant to s 411(1) of the Corporations Act2001 for orders convening meetings of the holders of ordinary shares in Dyno Nobel (other than Incitec Pivot Ltd and its subsidiaries (“Incitec Pivot Group”)) for the purpose of considering, and if thought fit, agreeing to a scheme of arrangement whereby the Incitec Pivot Group will acquire all the shares in Dyno Nobel other than those already held by the Incitec Pivot Group; and to convene a meeting of holders of options to subscribe for shares in Dyno Nobel to consider a scheme of arrangement whereby their shares will be acquired for cash.
Subject to certain amendments to the order sought and the experts’ report I made the orders sought but reserved my reasons for doing so. I now publish those reasons.
INTRODUCTION
In substance, the scheme proposed by Dyno Nobel is to effect a takeover of Dyno Nobel by the Incitec Pivot Group.
In exercising my to convene such meetings, I will consider the following matters:
(a) the likelihood or otherwise that the scheme will be approved by the court, if the statutory majorities are obtained in the meetings;
(b) whether there has been compliance with preliminary matters relevant to the holding of the proposed meetings;
(c) whether disclosure in the Scheme Booklet of the details and effects of the proposed scheme is sufficient; and
(d) whether ASIC has had a reasonable opportunity to examine the terms of the scheme.
BACKGROUND
Dyno Nobel is a public company limited by shares incorporated under the Act. It is listed on the Australian Stock Exchange (“the ASX”).
Dyno Nobel is a leading supplier of industrial explosives and blasting services to the mining, quarrying, seismic and construction industries. Its pro forma financial information for the year ended 31 December 2007 disclosed revenue of $US1,398.9 million and profit of $US110.4 million.
As at 31 March 2008, Dyno Nobel had approximately 9,895 shareholders.
As at 9 April 2007, the issued share capital of Dyno Nobel consisted of 820,025,840 fully paid shares.
As at 10 April 2008, Dyno Nobel had issued 23,364,738 options.
As at 9 April 2008, Dyno Nobel had issued 3,000,000 Dyno Nobel step-up preference securities with a face value of $AU100 each.
Incitec Pivot is a chemical manufacturer which supplies agricultural fertilisers and industrial chemicals to Australian and overseas markets. Incitec Pivot is Australia’s largest manufacturer and distributor of fertiliser products. Its market capitalisation as at 2 April 2008 was approximately $AU7 billion.
Incitec US Holdings, a wholly owned subsidiary of Incitec Pivot, will acquire all the shares under the scheme.
As at 19 April 2008, the Incitec Pivot group held 13.1532% of the shares in Dyno Nobel.
THE SCHEMES
The substance of the schemes and other matters relevant to their consideration by shareholders and option holders is contained in a letter from the chairman of Dyno Nobel to Dyno Nobel shareholders and Dyno Nobel optionholders. The letter provides as follows:
Dear Dyno Nobel Shareholders and Dyno Nobel Optionholders,
On 11 March 2008, Dyno Nobel announced the signing of an agreement with Incitec Pivot under which Incitec Pivot proposes to acquire all of the ordinary shares in Dyno Nobel not held by Incitec Pivot via a scheme of arrangement.
Incitec Pivot is offering A$0.70 in cash and 0.01406 New Incitec Pivot Shares for every Dyno Nobel Share held. Based on Incitec Pivot’s volume weighted average price (VWAP) for the ten trading days to 5 March 2008, the offer values Dyno Nobel at A$2.80 per share, or equivalently A$3.3 billion on an enterprise value basis. This represents:
A premium of 25.7% to the Dyno Nobel one month VWAP to Wednesday 5 March 2008;
A premium of 48.9% to the last closing price of Dyno Nobel Shares prior to Incitec Pivot commencing the acquisition of its 13.2% stake in Dyno Nobel on 24 August 2007; and
A premium of 36.6% to the last closing price of Dyno Nobel Shares prior to Incitec Pivot announcing to ASX the acquisition of its 13.2% stake in Dyno Nobel on 29 August 2007.
The Share Scheme has a number of attractive features. Dyno Nobel Shareholders may elect to maximise the Cash Consideration or the Scrip Consideration they receive in respect of their Dyno Nobel Shares, subject to offsetting elections. The Share Scheme also incorporates downside protection in light of current market volatility. To this end, if the Incitec Pivot VWAP for the ten trading days prior to the Second Court Hearing falls below A$138.16, then the Scrip Consideration will be increased to ensure a minimum Standard Share Scheme Consideration of A$2.64 per Dyno Nobel Share.
In addition to the Share Scheme, a scheme of arrangement is proposed between Dyno Nobel and the Dyno Nobel Optionholders under which all Dyno Nobel Options will be cancelled and Dyno Nobel Optionholders will receive cash consideration of between A$0.57 and A$0.75 per Dyno Nobel Option, depending on the terms of the relevant Dyno Nobel Options.
The combination of Dyno Nobel and Incitec Pivot has compelling strategic merit, enabling shareholders in both Dyno Nobel and Incitec Pivot to benefit from an exposure to both the explosives industry during a sustained commodities boom and the global fertiliser industry’s outlook for continued growth. The Merged Group will be able to leverage Dyno Nobel’s significant North American manufacturing capacity and extensive distribution platform to increase sales into the fertiliser market. Completion of the Cheyenne facility expansion in mid-2008 will further assist in this regard.
Longer term, integration of Dyno Nobel and Incitec Pivot is expected to provide significant diversification benefits and a strengthened platform for geographic expansion into targeted markets.
The Schemes require your approval as Dyno Nobel Shareholders and Dyno Nobel Optionholders. The Dyno Nobel Board has unanimously recommended the Schemes in the absence of a Superior Proposal and each Director intends to vote his holdings in Dyno Nobel in favour of the Schemes.
The Independent Expert (Ernst & Young Transaction Advisory Services), appointed by the Dyno Nobel Board, has concluded that the Schemes are fair and reasonable and in the best interests of Dyno Nobel Shareholders and Dyno Nobel Optionholders. A concise version of the Independent Expert’s report is set out in full in Annexure B of this Scheme Booklet.”
THE FUNCTION OF THE COURT
In FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd[1], Street CJ said:
The approach taken upon a summons is that the court will not ordinarily summons a meeting unless the scheme is of such a nature and cast in such terms that if it achieves a statutory majority at the creditors’ meeting, the court would be likely to approve it on the hearing of a petition which is unopposed.[2]
[1](1977) 3 ACLR 69
[2]Ibid 72
This observation was subsequently approved by the High Court in Australian Securities Commission v Marlborough Gold Mines Ltd.[3]
[3](1993) 117 CLR 485 at 504
In Sonodyne International Ltd[4] Hayne J of the Supreme Court of Victoria said:
The question that is presented at this stage of the process of a company propounding and implementing a scheme arrangement [i.e. before the first meeting] is whether the scheme is such that it could reasonably be supposed by sensible people to be for the benefit of those concerned. That is, the test in the present case is whether it is reasonable to suppose that sensible people might consider that the arrangement proposed by the company is of benefit to its members.
[4](1994) 15 ACSR 494 at 499
That test is akin to the test which is applied at the second hearing to approve the scheme but also is relevant at the first hearing as the court should form a view whether the court is likely to approve the scheme at the second hearing if the scheme achieves the necessary statutory majority.
The well accepted expression of the matters that the court should consider at the second hearing on whether to approve the scheme which, for the reasons already mentioned, are relevant to bear in mind at the first hearing were expressed by Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co[5] where he said:
Then the next inquiry is – Under what circumstances is the Court to sanction a resolution which has been passed approving of a compromise or arrangement? I shall not attempt to define what elements may enter into the consideration of the Court beyond this, that I do not doubt for a moment that the Court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith; and, further, it must be satisfied that the proposal was at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interests as such a member, might approve of it. What other circumstances the Court may take into consideration I will not attempt to forecast.
[5][1891] 1 Ch 213 at 247.
Applying these tests, I am satisfied that if the schemes are approved by the statutory majority, it is likely that they will be approved by the court. In particular I am satisfied on the material currently before me that a court is likely to find that the proposition has been made in good faith and further that the court is likely to find that the proposal was at least so far fair and reasonable as that an intelligent and honest person who is a member of the class of members to whom the proposal is put and acting alone in respect of his or her interests as such a member might approve it.
As to whether thee has been compliance with preliminary matters relevant to the holding of the proposed meetings, I am satisfied that there has been compliance with the preliminary matters relevant to the holding of the proposed meeting.
THE SCHEME BOOKLET
As to the matters referred to in (c), that is whether disclosure in the Scheme Booklet of the details and effects of the proposed scheme is sufficient, I have had regard to s 412(8) of the Corporations Act 2001 which provides:
412(8) [Preconditions to registration]
Where a copy of an explanatory statement is lodged with ASIC for registration under sub-section (6), ASIC must not register the copy of the statement unless the statement appears to comply with this Act and ASIC is of the opinion that the statement does not contain any matter that is false in a material particular or materially misleading in the form or context in which it appears.
412(6) [Registration of copy with ASIC]
In the case of a compromise or arrangement that is not, or does not include, compromise or arrangement between a part 5.1 body and its creditors or any class of them, the body must not send out an explanatory statement pursuant to sub-section (1) unless a copy of that statement has been registered by ASIC.
I am satisfied, therefore, that the explanatory statement in this case must be registered by ASIC and that ASIC will carry out its duties under sub-s (8). Nevertheless, it was proposed that I make an order that the Scheme Booklet be approved for distribution to the scheme shareholders and optionholders. It was submitted to me that such an order would not constitute an approval of the explanatory statement required by s 411(1)(a). It was submitted that the order would merely approve the distribution of the Scheme Booklet that contains amongst other matters the explanatory statement rather than approve the content of the explanatory statement under s 411(1).
Be that as it may, I qualified the order sought by prefacing the order with the words “if and when ASIC registers the explanatory statement pursuant to s 412(6)”, as the distribution would be approved only if and when the explanatory statement was registered by ASIC. Before ASIC registered the explanatory statement, ASIC would need to satisfy itself that the statement appears to comply with the Corporations Act2001 and that ASIC was of the opinion that the statement did not contain any matter that was false in a material particular or materially misleading in the form or context in which it appeared.
OTHER MATTERS TO BE ADDRESSED
As to whether ASIC has had a reasonable opportunity to examine the scheme, I am satisfied it did. A letter was tendered from ASIC in the usual form saying it did not intend to appear at this stage and had no objection to the scheme.
It is customary in considering a scheme to effect a takeover to have regard to what is described as the “break fee”, the “no shop no talk” provisions and the “performance risk”. Each of these have been dealt with in the submissions filed in support of the application which I set out as follows:
Break fee
(1) Clause 12 of the SIA contains certain provisions in relation to a reciprocal break fee of $16m, which may be paid by either Dyno Nobel or Incitec US Holdings depending on the circumstances (which are set out in section 1.10 of the draft Scheme Booklet). The circumstances in which the break fee was agreed upon are set out in clause 12.1 of the SIA, being that:
a. the Boards of Dyno Nobel and Incitec US Holdings agreed to the break fee having regard to the benefits accruing to Dyno Nobel and Incitec Pivot US Holdings, as well as to the shareholders of Dyno Nobel, Incitec US Holdings and Incitec Pivot; and
b. the amount payable is intended, to some extent, to compensate the other party for advisory costs, costs of management and directors’ time, commitment fees, financing costs, out of pocket expenses, and opportunity costs incurred as part of the proposed transaction.
(2) We submit that, in accordance with the guidelines set down in APN News & Media Limited[6]:
[6](2007) 62 ACSR 400 at 411
a. the break fee was the result of ordinary commercial negotiation between Dyno Nobel and Incitec Pivot. See paragraph 25 of the Geoff Tomlinson Affidavit outlining the negotiation process undertaken;
b. the directors of Dyno Nobel unanimously recommend the proposed transaction (in the absence of a superior proposal) on the basis that it is in the best interests of Dyno Nobel shareholders. See section 1.4 of the draft Scheme Booklet; and
c. the break fee of $16m in comparison to Dyno Nobel’s market capitalisation of approximately $2.3bn as implied by Incitec US Holdings’ offer gives a percentage of 0.70%. Alternatively, the break fee of $16m in comparison to Dyno Nobel’s market capitalisation of $1.9bn (as calculated by reference to the price of the Shares at the close of market on 10 March 2008, being the day before the Proposed Transaction was announced) is 0.84%. Both calculations are less than the 1% guideline on break fees set down by the Takeovers Panel.
(3) Furthermore, the break fee is not payable simply because Dyno Nobel shareholders reject the Share Scheme, and therefore is unlikely to influence shareholders in deciding whether to accept or reject the Share Scheme.
(4) Accordingly, we submit that the break fee is acceptable.
Exclusivity Period – no shop and no talk
(5) Clause 16 of the SIA contains reciprocal ‘no shop’ and ‘no talk’ provisions in respect of Dyno Nobel and Incitec Pivot during the ‘Exclusivity Period’ which is defined as:
the period commencing on the date of this Agreement and ending on the earlier of:
(a) the termination of this Agreement in accordance with its terms;
(b) the Implementation Date; and
(c) the End Date.
(6) The End Date is ‘the date which is 9 months after the Announcement Date, or such later date as Incitec US Holdings and Dyno Nobel may agree in writing’: see the SIA clause 1.1 Definitions.
(7) In Re Arthur Yates & Co Ltd[7], Santow J said that an exclusivity period should meet the following criteria:
[7](2001) 36 ACSR 758 at 759-760
a. it should be for no more than a reasonable period which is capable of precise ascertainment;
b. it must be framed so that it is subject to an overriding obligation not to breach the directors’ fiduciary duties or be otherwise unlawful; and
c. the exclusivity clause should be given adequate prominence in the explanatory statement sent to shareholder.
See also APN at 406 and Re Veda Advantage Ltd. [8]
[8][2007] FCA 822 per Lindgren J
(8) We submit that:
a. the exclusivity period is for 9 months but the scheduled Implementation Date for the Schemes is Friday 13 June 2008, being just over 3 months after the signing of the SIA: see ‘Key Dates’ on page 3 of the draft Scheme Booklet. This is comparable to other recent proposed schemes of arrangement, such as Symbion Health’s scheme which had a 6 month lock up period, with Symbion Health having discretion to extend this period up to 9 months;
b. there is, as required by Santow J, a carve out in relation to directors’ fiduciary duties – see clause 16.3 of the SIA, which provides for carve outs where either the Dyno Nobel Board or the Incitec Pivot Board has:
determined, in good faith and acting reasonably, that failing to respond in any way to that Competing Proposal for Incitec Pivot would be likely to cause the [Dyno Nobel/Incitec Pivot] Directors to breach their fiduciary duties;
c. both Dyno Nobel and Incitec Pivot considered that this clause was a prerequisite to entry into the SIA (see clause 16.4 of the SIA); and
d. the exclusivity period has been adequately disclosed in the explanatory statement to go to shareholders and optionholders – see section 1.9 of the draft Scheme Booklet.
No encumbrance
(8) Clause 4.4 of the Share Scheme provides that:
To the extent permitted by law, all of the Scheme Shares will vest in [Incitec US Holdings] free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind, whether legal or otherwise, and restrictions on transfer of any kind.
(9) This type of clause has been accepted by the Federal Court in several recent cases, including Re Investa Properties Limited[9]and HPAL Limited[10]. We also understand that, although not referred to in the judgments, there was a similar clause in the Coles scheme of arrangement (clause 4.2(b) of the Coles scheme of arrangement) which was approved by Robson J recently: see Re Coles Group Limited[11] (Coles Group No 1) and Re Coles Group No 2.[12]
Deemed warranty
(10) Clause 8.6 of the Share Scheme states that:
Each Scheme Participant is deemed to have warranted to [Incitec US Holdings] that all of their Scheme Shares (including any rights and entitlements attaching to those shares) will, at the date of the transfer of them to [Incitec US Holdings], be fully paid and free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind, whether legal or otherwise, and restrictions on transfer of any kind, and that they have full power and capacity to sell and to transfer their Scheme Shares together with any rights and entitlements attaching to such shares.
(11) This type of clause was strongly criticised by Fryberg J in Mincom No 1[13] as being:
onerous, unreasonable and calculated to catapult unsuspecting shareholders who have not read the small print of the arrangement in the schedule to the explanatory statement into a statement of breach of warranty.
(12) However, the subsequent line of authorities, including APN, Adelaide Bank,[14] Re Orion Telecommunications Ltd[15], Coles Group No 1[16] and Re Hostworks Group Ltd,[17] consider such clauses to be acceptable as long as the warranty is sufficiently disclosed in the explanatory statement to shareholders.
(13) Having regard to the disclosure made in section 1.11 of the draft Scheme Booklet, we submit that this deemed warranty clause is acceptable.
[9](2007) 25 ACLC 1186 per Lindgren J
[10][2007] FCA 1570, Jacobson J
[11](2007) 25 ACLC 1380
[12][2007] VCA 563
[13](2007) 61 ACSR 266 at 280
[14][2007] FCA 1582
[15][2007] FCA 1389
[16](2007) 25 ACLC 1380
[17](2008) ACLC 137; [2008] FCA 64
Performance Risk
(14) Some recent court cases have raised the issue of ‘performance risk’ – ie, the danger that the bidding company may be, or may become, unwilling or unable to meet its obligations to pay the cash consideration component to the transferor shareholders. See for example the cases referred to by Lindgren J in APN at 405.
(15) The risk has been addressed in the Proposed Transaction via the following mechanisms:
a. by reason of Clause 8.1 and 8.3 of the Share Scheme, the share scheme participants appoint Dyno Nobel as their agent and attorney for the purpose of enforcing the Deed Poll obligations against Incitec US Holdings or Incitec Pivot, and Dyno Nobel undertakes to enforce the Deed Poll on behalf of the scheme participants. This appointment and undertaking are acknowledged by Incitec Pivot and Incitec US Holdings in Clause 1.3 of the Deed Poll;
b. in clause 8.2 of the Share Scheme, Incitec Pivot (which is not a party to the Share Scheme) covenants in favour of each share scheme participant and in favour of Dyno Nobel that it will procure that Incitec US Holdings complies with its obligations under the Share Scheme; and
c. clause 4.2 of the Share Scheme provides that share scheme participants’ Shares will be transferred to Incitec US Holdings on the Implementation Date subject to the provision of consideration by Incitec US Holdings and written confirmation thereof by Incitec US Holdings to Dyno Nobel.
(16) We submit that the risk is lessened having regard to the fact that Incitec Pivot’s market capitalisation is approximately $7bn (in comparison to Dyno Nobel’s market capitalisation of $1.9bn as calculated by the share price at the close of market on 10 March 2008, or alternatively $2.3bn as implied by Incitec Pivot’s offer announced on 11 March 2008).
(17) Furthermore, Incitec Pivot has secured commitments to provide a facility of $2.4bn (Facility), which is sufficient to pay the cash consideration under the Share Scheme and the Option Scheme Consideration. The Facility is described in section 8.11 of the draft Scheme Booklet. The Facility is to be guaranteed by various members of the Incitec Pivot Group.
(18) The total maximum cash consideration payable by Incitec US Holdings can be calculated by reference to the Cash Consideration Cap under the SIA (total Scheme Shares (712,141,060 Shares) x 0.70 = approximately $498.5m) plus Option Scheme Consideration (approximately $16m). Accordingly, the total maximum cash consideration payable by Incitec US Holdings for the Schemes is approximately $514.5m.
(19) To ensure that Incitec Pivot has sufficient funds available to meet its obligations, the financiers to Incitec Pivot have agreed that, during the period from the date of the SIA to and including the Implementation Date, there will be certainty as to the availability of funds under the Facility, subject to a number of conditions precedent.
(20) It is expected that these conditions will be satisfied before the second court hearing (other than Court approval and certain other conditions which are intended to be satisfied concurrently with the first drawdown including the payment of fees and expenses and the repayment of indebtedness).
(21) We note that Incitec Pivot have indicated in the draft Scheme Booklet that they are not aware of any reasons why the conditions precedent will not be satisfied in time for payment of the cash consideration under the Share Scheme and Option Scheme Consideration as and when they are due under the Schemes.
(22) Accordingly, we submit that any performance risk related to the Schemes has been addressed.
I accept those submissions.
THE EXPERT’S REPORT
Ernst and Young have prepared an independent expert’s report. The report says that in preparing the report they have had regard to ASIC Regulatory Guide 111. Under the heading of “Takeover bids”, the guide provides as follows:
RG 111.9
It has long been accepted in Australian mergers and acquisitions practice that the words ‘fair and reasonable’ in s640 establish two distinct criteria for an expert analysing a control transaction:
(a) is the offer ‘fair’; and
(b) is it ‘reasonable’?
That is, ‘fair and reasonable’ is not regarded as a compound phrase.
RG 111.10
Under this convention, an offer is ‘fair’ if the value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer. This comparison should be made assuming 100% ownership of the ‘target’ and irrespective of whether the consideration is scrip or cash. The expert should not consider the percentage holding of the ‘bidder’ or its associates in the target when making this comparison. For example, in valuing securities in the target entity, it is inappropriate to apply a discount on the basis that the shares being acquired represent a minority or ‘portfolio’ parcel of shares.
RG 111.11
An offer is ‘reasonable’ if it is fair. It might also be ‘reasonable’ if, despite being ‘not fair’, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid before the close of the offer.
Under the heading of “Value ranges”, it is provided as follows:
RG 111.62
An expert should usually give a range of values. The value of securities is typically subject to uncertainty and volatility. Placing a precise dollar value on them is likely to imply a misleading accuracy to a valuation.
In his valuation, the expert has assessed a low value of the consideration offered for each Dyno Nobel share and a high value: being $2.64 low and $2.83 high. The expert has also valued the Dyno Nobel share being acquired on a low value of $2.43 and a high value of $2.87. Thus, it can be seen that on the low valuation the consideration being offered is greater than the value of the share being acquired, however, on the high valuation the consideration being offered is less than the value of the share being acquired.
The expert’s report to be included in the Scheme Booklet states that “As the range of values that we have concluded upon the Share Scheme Consideration falls within the range of values that we have ascribed to the Dyno Nobel Shares being acquired we consider the terms of the Share Scheme to be fair.”
I raised with senior counsel the issue of the high value of the consideration being less than the high value of the share being acquired and whether it was appropriate to say in those circumstances that the offer was fair when ASIC required the consideration to be equal to or in excess of the value of the target share being acquired.
Mr Santamaria, one of Her Majesty’s counsel, on behalf of counsel for Dyno Nobel, referred me to two cases where the court had approved a scheme where the consideration offered was said to be fair but fell between the low value and the high value of the target shares put on by the expert; those being Re APN News & Media Limited[18] and Zenyth Therapeutics Limited v Smith.[19]
[18][2007] FCA 770 at 405.
[19][2006] VSC 437 at 552.
Neither of those decisions squarely addressed the issue of the consequence of the consideration being less than the high value. In both cases there was no range of consideration as in this case. Senior counsel also referred me to seventeen other takeover schemes where he said the consideration offered fell between the low and high value of the shares being acquired. In many of the examples the experts opined the proposal was fair where the consideration offered fell between the lower and upper value of the target share.
To resolve the issue and to make sure the shareholders were fully informed, the expert agreed to amend his report as follows:
Notwithstanding the fact that the high end of our assessed value for a Dyno Nobel share is above the high end of our assessed value of the Share Scheme Consideration, as the range of values that we have concluded upon for the Share Scheme Consideration falls within the range of values that we have ascribed to the Dyno Nobel shares being acquired we confirm the terms of the Share Scheme to be fair.
Also, the expert added to the report the following:
ASIC Regulatory Guide 111.0 provides that ‘an offer is fair if the value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer’. ASIC Regulatory Guide 111.62 provides that an expert should usually give a range of values for the securities the subject of the offer. In this report, we consider that, if the value of the consideration offered falls within the range of values of the securities the subject of the offer, the offer is fair.
The fact remains, however, that ASIC recommends a range of values be used for both the consideration and the share being acquired. If the offer is to be considered fair even though the consideration is valued at less than the target share being acquired at one end of the range of values then it would be preferable if ASIC were to expressly say so in its guidelines. In my opinion, this is a matter that should be clarified by ASIC in its’ Regulatory Guides.
For present purposes, however, I formed the view that full disclosure has been made of the approach taken by the experts and in the circumstances I believed it was reasonable for the expert’s report to go to the shareholders and option holders in the amended form that it is in and for the shareholders and option holders to form their own view of the merits of the schemes proposed.
For these reasons I made the orders sought by the plaintiff.
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