Re Saracen Mineral Holdings Ltd
[2020] WASC 483
•8 JANUARY 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: EX PARTE SARACEN MINERAL HOLDINGS LTD [2020] WASC 483
CORAM: HILL J
HEARD: 9 DECEMBER 2020
DELIVERED : 9 DECEMBER 2020
PUBLISHED : 8 JANUARY 2021
FILE NO/S: COR 138 of 2020
MATTER: IN THE MATTTER OF SARACEN MINERAL HOLDINGS LTD
EX PARTE
SARACEN MINERAL HOLDINGS LTD
Plaintiff
NORTHERN STAR RESOURCES LTD
Interested Party
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Scheme of arrangement to effect merger of equals - Whether requirements to order scheme meeting are satisfied - Orders made convening meeting
Legislation:
Corporations Act 2001 (Cth), s 411, s 412(1)(a), s 1319
Corporations Regulations 2001 (Cth), sch 8
Supreme Court (Corporations) (WA) Rules 2004 (WA), r 3.2
Securities Act 1933 (USA), s 3(a)(10)
Result:
Orders made convening scheme meeting
Category: B
Representation:
Counsel:
| Plaintiff | : | S K Dharmananda SC & J R C Sippe |
| Interested Party | : | C L Pedler |
Solicitors:
| Plaintiff | : | DLA Piper Australia - Perth |
| Interested Party | : | Ashurst Australia |
Case(s) referred to in decision(s):
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381
Re Doray Minerals Ltd; Ex Parte Doray Minerals [2019] WASC 57
Re Duet Finance Ltd [2017] NSWSC 415
Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34
Re Excelsior Gold Limited [2018] FCA 2064
Re Investa Properties Ltd [2007] FCA 1104
Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [No 2] [2018] WASC 388
Re Kidman Resources Ltd [2019] FCA 1226
Re Macquarie Private Capital A Ltd [2008] NSWSC 323
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Scarborough Equities Ltd [No 2] [2009] FCA 484
Re SRG Limited [2018] FCA 1092
Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308
HILL J:
The plaintiff, Saracen Mineral Holdings Limited (Saracen), is an Australian public company listed on the official list of the Australian Securities Exchange (ASX).
On 6 October 2020, Saracen announced it had entered into a merger implementation deed with Northern Star Resources Limited (Northern Star) (Scheme).[1] Under the Scheme, it is proposed that Saracen will become a wholly owned subsidiary of Northern Star and will be delisted from the ASX. Each Saracen shareholder will receive 0.3763 fully paid ordinary shares in Northern Star for each Saracen share.[2]
[1] Affidavit of Morgan Scott Ball filed 19 November 2020 [11].
[2] Affidavit of Morgan Scott Ball filed 19 November 2020 [12].
By originating process dated 18 November 2020, Saracen sought orders under s 411 of the Corporations Act 2001 (Cth) (Act) in relation to the proposed Scheme. The application came before me for the first court hearing on 9 December 2020.
On 9 December 2020, I made orders pursuant to s 411(1) of the Act to convene a meeting of Saracen's members to consider and vote on the proposed Scheme. Orders were also made for the approval for distribution of a scheme booklet under s 412(1)(a) of the Act. I also made ancillary orders as to the convening and conduct of the Scheme meeting under s 1319 of the Act. I said that I would publish written reasons for my orders subsequently. These are my reasons for decision.
Factual background
Saracen
The plaintiff is a gold exploration and production company with all of its operations based in Western Australia. It has a 50% interest in Kalgoorlie Consolidated Gold Mines Pty Ltd (the Super Pit). It also operates the Carosue Dam Operation and the Thunderbox Operation which are located in the same region of Western Australia.[3]
[3] Scheme booklet, [5.2].
As at 13 November 2020, the plaintiff had 1,107,636,918 fully paid ordinary shares (Shares) on issue.[4] At this time there were also 17,059,150 performance rights (Performance Rights) and 30,532 non‑executive director share rights (NED Share Rights) on issue with varying expiry dates and vesting conditions.[5] Following the lapsing of certain options and the conversion of performance rights into shares, as at 3 December 2020, Saracen had 16,908,130 Performance Rights on issue.[6]
Northern Star
[4] Affidavit of Morgan Scott Ball filed 19 November 2020 [47(a)].
[5] Affidavit of Morgan Scott Ball filed 19 November 2020 [47(b) and (c)].
[6] Affidavit of Morgan Scott Ball filed 7 December 2020 [35(a)], 'MSB-27'.
Northern Star is an Australian gold production and exploration company listed on the ASX.[7] It owns the other 50% interest in the Super Pit. In addition, Northern Star operates mines in the Kalgoorlie region as well as the Pogo operation in Alaska. Northern Star is Australia's second largest gold producer and is among the top 15 producers globally.[8]
[7] Affidavit of Morgan Scott Ball filed 7 December 2020 [10]; Scheme booklet, [6.2].
[8] Scheme booklet, [6.2].
If the Scheme is implemented, Saracen's operations will be merged with Northern Star's. All of Saracen's Shares will be acquired by Northern Star and Saracen will become a wholly owned subsidiary of Northern Star and be delisted from the ASX.[9]
Proposed Scheme
[9] Affidavit of Morgan Scott Ball filed 19 November 2020 [43].
The purpose of the proposed Scheme between Saracen and Northern Star is to create a merger of equals.[10] Several reasons are given for the proposed merger of Saracen and Northern Star including the consolidation of a complementary portfolio of high quality assets, as well as ongoing growth potential within the gold sector.[11]
[10] Affidavit of Morgan Scott Ball filed 19 November 2020, 'MSB7'.
[11] Scheme booklet, [7.4].
If the Scheme is implemented, the plaintiff's shareholders will receive 0.3763 fully paid ordinary Northern Star shares for each Saracen share as consideration for the acquisition of their shares under the Scheme (Scheme Consideration).[12] In addition, Saracen intends to pay a special dividend of $0.038 per Share on the business day prior to implementation, which is expected to be fully franked.[13] Ineligible overseas shareholders and Unmarketable Parcel Shareholders who do not elect to receive Northern Star shares will receive a pro rata share of the net proceeds from the sale of their Scheme Consideration which will be sold through a sale facility.[14]
[12] Scheme, cl 2.4.
[13] Affidavit of Morgan Scott Ball filed 19 November 2020 [38] - [42].
[14] Scheme, cls 4.3 and 4.4.
The Performance Rights and NED Share Rights will be dealt with outside the Scheme. In relation to the Performance Rights, prior to the implementation date, some will vest and convert to Shares, while some, where the vesting conditions have not and cannot be met, will be forfeited.[15] Some of the NED Share Rights will automatically vest and convert to the same number of Saracen shares on 1 January 2021, while other tranches will be forfeited and cancelled prior to the Scheme record date.[16]
[15] Scheme booklet, [10.19].
[16] Scheme booklet, [5.16].
On 6 October 2020, the plaintiff and Northern Star entered into a merger implementation deed (MID) for the proposed Scheme.[17] The MID was subsequently amended on 13 October 2020[18] and 7 December 2020.[19]
[17] Affidavit of Morgan Scott Ball filed 19 November 2020 [11], 'MSB-5'.
[18] Affidavit of Morgan Scott Ball filed 19 November 2020 [11], 'MSB-6'.
[19] Affidavit of Morgan Scott Ball filed 7 December 2020 [19], 'MSB-25'.
The directors of Saracen unanimously recommend that their shareholders vote in favour of the Scheme.[20]
[20] Scheme booklet, 'Letter from the Chairman'.
Saracen retained an independent expert to give an opinion on the proposed Scheme. The independent experts, Evgeny Khrustalev and Julie Wolstenholme of Ernst & Young Strategy and Transactions Limited (Ernst & Young), have concluded that, in the absence of a superior proposal, the Scheme is fair and reasonable and in the best interests of Saracen's shareholders.[21]
[21] Scheme booklet, Annexure '1'.
Evidence for first court hearing
Saracen and Northern Star relied on nine affidavits that were filed prior to the first hearing. These were:
(a)an affidavit of Morgan Scott Ball sworn 18 November 2020. Mr Ball is the chief financial officer of Saracen. Mr Ball confirmed a number of formal matters, outlined the nature of the proposed Scheme and attested to the verification process that had been undertaken by Saracen in relation to the draft Scheme booklet. His affidavit annexed the draft Scheme booklet, the ASX announcement of the proposed Scheme, information about Saracen obtained from the Australian Securities and Investments Commission (ASIC), Saracen's constitution, the various security registers of Saracen and the proxy form to be given to shareholders.
(b)an affidavit of Hilary Fare Macdonald affirmed 4 December 2020. Ms Macdonald is the general counsel and company secretary of Northern Star. The affidavit provided a further explanation of the Scheme, outlined the verification process of the Scheme booklet undertaken by Northern Star and confirmed the execution of a deed poll by Northern Star. Annexed to the affidavit were the verification certificates, disclosure questionnaires completed by Northern Star management and the circular resolutions approving the information in the Scheme booklet.
(c)an affidavit of Michael Phillip Bowen sworn 18 November 2020. Mr Bowen is a partner at DLA Piper, the solicitors for the plaintiff and is the proposed chairperson of the Scheme meeting. By his affidavit, Mr Bowen consented to act as chairperson of the meetings and provided the necessary disclosures required by r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules). Mr Bowen gave evidence that James Stewart, a partner of DLA Piper, who is nominated as the alternate chairperson for the Scheme meeting, consented to this nomination and provided the necessary disclosures required by r 3.2 of the Corporations Rules on behalf of Mr Stewart.
(d)an affidavit of Kirsty Jayne Hall sworn 19 November 2020. Ms Hall is a solicitor employed by DLA Piper. Ms Hall confirmed that the draft Scheme booklet was submitted to ASIC and that ASIC had been given notice of the first court hearing. The affidavit annexed correspondence between DLA Piper and ASIC.
(e) a second affidavit of Ms Hall sworn 4 December 2020. Ms Hall annexed the correspondence between ASIC, Ernst & Young, and DLA Piper in relation to the Scheme booklet and independent expert report, and an updated version of the Scheme booklet.
(f)a second affidavit of Mr Ball sworn 7 December 2020 which gave further information on Saracen's verification process, amendments made to the MID and Scheme, the arrangements with Saracen's directors if the Scheme is implemented, further information on how certain ineligible shareholders will receive their Scheme Consideration, and the format of the Scheme meeting. Mr Ball's affidavit annexed the sign-offs of Saracen's management regarding the Scheme verification, the disclosure questionnaire, the letter deed to amend the MID and Scheme, an ASX announcement updating shareholders on the status of the Scheme and an updated rights summary report of Saracen's share registry.
(g)a third affidavit of Ms Hall sworn 7 December 2020 which annexed further correspondence with ASIC, as well as marked up and clean versions of the Scheme booklet.
(h)an affidavit of Simon Antony Jessop sworn 8 December 2020. Mr Jessop is the chief operating officer of Saracen. By his affidavit, Mr Jessop confirmed the verification of the updated Scheme booklet and set out the expected operational synergies if the Scheme is implemented.
(i)a fourth affidavit of Ms Hall sworn 8 December 2020. Ms Hall confirmed that all court documents had been served on ASIC and annexed further correspondence with ASIC, including in relation to the query raised by the court in respect of the independent expert report, as well as the final Scheme booklet (including the amended independent expert report). She also annexed the letter from ASIC confirming that ASIC did not propose appearing at the first court hearing.
Nature of proposed scheme
The proposed Scheme contemplates that Northern Star will acquire all of the fully paid ordinary shares of Saracen and that shareholders will receive 0.3763 Northern Star shares for each Saracen share held. That is, the effect of the Scheme is to make Saracen a wholly owned subsidiary of Northern Star.
Shareholders whose address in the Saracen register is in a jurisdiction other than Australia, New Zealand, the United Kingdom, the United States of America, Canada, Luxembourg, Ireland, Switzerland, Cayman Islands, Germany, France, Japan, United Arab Emirates, Malaysia, Lichtenstein, Hong Kong and Singapore are considered Ineligible Foreign Shareholders and will not receive the Scheme Consideration. The Northern Star shares that would otherwise have been issued to these shareholders will be issued to a sale agent and sold as soon as reasonably practicable, or in any event, 10 business days following the Scheme implementation date.[22] The net proceeds will be paid by Northern Star to the Ineligible Foreign Shareholders on a pro rata basis.
[22] Scheme booklet, [4.5] and [4.8].
As at 13 November 2020, there were 22 Ineligible Foreign Shareholders holding 548,515 shares, comprising approximately 0.05% of the Shares on issue.[23]
[23] Affidavit of Morgan Scott Ball filed 19 November 2020 [19], 'MSB-8'.
Shareholders (other than Ineligible Foreign Shareholders) who, based on the number of shares held on the Scheme record date, would be entitled to receive less than a marketable parcel of Northern Star shares, are designated as unmarketable parcel shareholders for the purpose of the Scheme (Unmarketable Parcel Shareholders). Unmarketable Parcel Shareholders may elect to opt‑in to receive the Scheme Consideration; those that do not or are unable to opt‑in prior to the Scheme record date will not be issued Northern Star shares as consideration for the Scheme.[24] The Northern Star shares that would have been issued to these shareholders will be issued to a sale agent and sold as soon as reasonably practicable, or in any event, 10 business days following the Scheme implementation date.[25] The net proceeds will be paid by Northern Star to the Unmarketable Parcel Shareholders on a pro rata basis.
[24] Affidavit of Morgan Scott Ball filed 19 November 2020 [23] - [24].
[25] Scheme booklet, [4.6] and [4.8].
As at 13 November 2020, there were 456 Unmarketable Parcel Shareholders who between them hold 10,607 shares comprising approximately 0.00096% of the Shares on issue.[26]
[26] Affidavit of Morgan Scott Ball filed 19 November 2020 [28], 'MSB-10'.
On 16 November 2020, Saracen's board of directors met to discuss their intention to declare a fully franked special dividend of $0.038 per Share (Special Dividend). If the Scheme becomes effective, on the Special Dividend record date, Saracen shareholders will receive the Special Dividend.[27]
[27] Affidavit of Morgan Scott Ball filed 19 November 2020 [38]; Scheme booklet, p 29.
Both the Performance Rights and the NED Share Rights are being dealt with outside the Scheme. Saracen is obliged under the MID to ensure that any Performance Rights will have expired or been cancelled and extinguished by the Scheme record date. The terms of the long term incentive plan provides, in respect of some of the Performance Rights, that where a change of control event has occurred, the Performance Rights automatically vest. The remaining Performance Rights vest where the Saracen Board exercises its sole discretion. The Board of Saracen has determined to exercise its discretion, on the basis that these Performance Rights would likely to have vested if the Scheme did not occur.[28] Following the vesting of the Performance Rights, the holders may exercise these rights and convert them into new Shares.
[28] Affidavit of Morgan Scott Ball filed 19 November 2020 [50] - [51].
Under the MID, all NED Share Rights will vest according to their terms and prior to the Scheme record date will either expire or be exercised, with Shares issued to the holders of the NED Share Rights.[29] Tranche 2 of the NED Share Rights will vest and automatically convert into 8,797 Shares on or about 1 January 2021.[30] Tranches 3 and 4 of the NED Share Rights will be forfeited prior to their vesting date and the directors of Saracen who hold these tranches will be paid director's fees in cash on and from 1 January 2021.[31]
[29] MID, cl 7.2; Affidavit of Morgan Scott Ball filed 19 November 2020 [58].
[30] Scheme booklet, p 60, 153.
[31] Affidavit of Morgan Scott Ball filed 19 November 2020 [60].
If the Scheme is implemented, Saracen will become a wholly owned subsidiary of Northern Star and will be delisted from the ASX. The Scheme will not be effective unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied are disclosed in the Scheme booklet.[32]
[32] Scheme booklet, [10.14].
If the Scheme is approved by shareholders and by the court at the second court hearing, on the implementation date, all existing Shares will be transferred to Northern Star and Northern Star will be entered in the Register as the holder of all Saracen shares.[33] Northern Star will provide the Scheme Consideration to Shareholders in return for their shares in Saracen.[34]
[33] MID, cl 4.2(z).
[34] MID, cl 4.3(p).
Northern Star is obliged to provide the Scheme Consideration prior to the transfer of the Shares.[35] The obligations of Northern Star under the Scheme are supported by a deed poll dated 6 October 2020 which has been executed by Northern Star (Deed Poll).[36]
[35] Scheme, cl 4.5.
[36] Affidavit of Hilary Fare Macdonald filed 4 December 2020 [35]; Scheme booklet, 'Annexure 5'.
The directors of Saracen unanimously recommend that Shareholders vote in favour of the Scheme.[37]
[37] Scheme booklet, [4.10].
An independent expert report (IER) has been prepared by Ernst & Young. The IER expresses the opinion that, in the absence of a superior proposal, the Scheme is fair and reasonable and in the best interests of Shareholders.[38] The IER determined that the range of value of a Share was between $4.59 (low) and $5.02 (high) and that the value of the Scheme Consideration was between $4.81 (low) and $5.46 (high). The basis for the valuation and the methodology used are set out in the IER. In reaching their conclusion, the IER determined that the Scheme Consideration overlaps and, at the upper end of the range, exceeds the range of value of Shares. The consideration of advantages, disadvantages and other factors that are likely to impact shareholders are set out comprehensively in the IER.
[38] Scheme booklet, 'Annexure 1'.
I was provided with the draft Scheme booklet which was lodged with ASIC on 18 November 2020[39] and the various amendments that have been made to the document since then.[40]
[39] Affidavit of Kirsty Jayne Hall filed 19 November 2020 [6], 'KJH-2'.
[40] Second affidavit of Kirsty Jayne Hall filed 4 December 2020, 'KJH-19'; Third affidavit of Kirsty Jayne Hall filed 7 December 2020, 'KJH-27'; Fourth affidavit of Kirsty Jayne Hall filed 8 December 2020, 'KJH-37'.
The Scheme booklet contains the following sections:
(a)important notices giving an overview of the Scheme and advising shareholders to obtain independent financial and taxation advice;
(b)a letter from the Chairman of Saracen and a letter from the Chair of Northern Star;
(c)a listing of all important dates and times for the Scheme;
(d)a section on reasons to vote for or against the Scheme;
(e)a 'frequently asked questions' table, which addresses all the essential matters;
(f)information on the Scheme meeting and voting;
(g)key considerations for shareholders in relation to the Scheme;
(h)information on Saracen, Northern Star and the merged group;
(k)a section on risk factors;
(l) a section on the taxation implications for Saracen shareholders;
(m)information about the Scheme; and
(n)a section on additional information, which included details of the relevant interests of Saracen's directors and the benefits they will obtain if the Scheme is approved.
The Scheme booklet includes a number of important annexures which will form part of the Scheme booklet. These include the IER, the investigating accountant's report, the MID, the proposed Scheme, the Deed Poll, and the relevant notice of meeting.
Legal principles in respect of the Scheme
Pursuant to s 411 of the Act, a scheme of arrangement can be used to re‑organise a company in a manner which will be binding on its members provided that:
(a)the arrangement is agreed by the requisite majorities as prescribed by s 411(4)(a) of the Act, namely 75% of shareholders by value and 50% by number; and
(b)the court approves the arrangement pursuant to s 411(4)(b) of the Act.
There are three stages to an application under s 411 of the Act. First, the court approves the convening of a scheme meeting and the draft explanatory statement to be sent to the scheme members. Second, the members vote on the proposed scheme at the scheme meeting. Third, assuming the first two stages have occurred, the court approves the proposed scheme.[41]
[41] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
There are well‑established principles which apply to the first stage of proceedings. The court will order the convening of the scheme meeting and approve the dispatch of the scheme booklet if is satisfied that:[42]
(a)there is a pt 5.1 body;
(b)there is a compromise or arrangement within the meaning of s 411 of the Act;
(c)the proposed scheme booklet contains the prescribed information[43] and provides proper disclosure;[44]
(d)the scheme is bona fide and properly proposed;
(e)ASIC has had at least 14 days' notice of the proposed hearing date and a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions;[45]
(f)the procedural requirements of the Act and the Corporations Rules have been met;
(g)the scheme is of such a nature that, if it receives the necessary statutory majority at the scheme meeting, the court will be likely to approve it.
[42] Re SRG Limited [2018] FCA 1092 [11]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308 [60].
[43] Corporations Act, s 412(1)(a)(ii); Corporations Regulations 2001 (Cth), reg 5.1.01 and Sch 8 cl 8301 ‑ 8310.
[44] Corporations Act, s 412(1)(a)(i).
[45] Corporations Act, s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[46] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[47]
[46] Re CSR Ltd [73].
[47] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].
The standard of review that is undertaken by the court at the first hearing is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members.[48] If the proposed arrangement is one that appears fit for consideration by a meeting of members and is a commercial proposition likely to gain the court's approval if passed by the necessary majority, leave should be given to convene the meeting.[49]
[48] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[49] Re SRG Limited [12]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [72] - [76].
Disposition
The formal matters that Saracen had to prove are satisfied.
Saracen is a company and, accordingly, is a pt 5.1 body. The proposed Scheme constitutes an 'arrangement'. This type of share acquisition scheme has been approved by courts as an arrangement on numerous occasions.
Saracen filed the affidavit required by r 3.2 of the Corporations Rules regarding the persons who have been nominated to be the chairperson and alternate chairperson for the Scheme meeting.[50]
[50] Affidavit of Michael Phillip Bowen filed 18 November 2020.
By letter dated 8 December 2020, ASIC confirmed that it had been given 14 days' notice of the hearing and had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement or scheme booklet.[51] ASIC also gave notice that it did not propose to appear at the first hearing to make submissions or intervene to oppose the Scheme.[52] ASIC confirmed by email later on 8 December 2020 that their earlier letter of intent provided to the plaintiff's solicitors had not changed in light of correspondence received from the court and the subsequent amendments that had been made to the IER.[53]
[51] Fourth affidavit of Kirsty Jayne Hall filed 8 December 2020, 'KJH-34'.
[52] Fourth affidavit of Kirsty Jayne Hall filed 8 December 2020, 'KJH-34'.
[53] Fourth affidavit of Kirsty Jayne Hall filed 8 December 2020, 'KJH-38'.
On the materials before me, there was nothing to suggest that the Scheme was not properly proposed. The constitution of Saracen does not prevent the Scheme.[54]
[54] Affidavit of Morgan Scott Ball filed 19 November 2020, 'MSB-4'.
No class issue arose in relation to the Scheme. The treatment of the Ineligible Foreign Shareholders and Unmarketable Parcel Shareholders are commonplace and are not class creating.[55] In relation to the process to address Northern Star's withholding tax obligations with respect to the Scheme Consideration, the parties have adopted a sale process commonly used for foreign shareholders and one that will only be followed if required. Such a process is not class creating.[56]
[55] See Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [96], [98].
[56] Re Kidman Resources Ltd [2019] FCA 1226 [118]; Re Duet Finance Ltd [2017] NSWSC 415 [17].
There are number of conditions precedent to the Scheme.[57] Both Mr Ball and Ms Macdonald have deposed that they are not aware of any basis to believe that any condition precedent will not be satisfied by the necessary time.[58]
[57] Scheme, cl 2.1.
[58] Second affidavit of Morgan Scott Ball filed 7 December 2020 [33] - [34]; Affidavit of Hilary Fare Macdonald filed 4 December 2020 [37] - [38].
I have read the initial draft of the Scheme booklet (as provided to ASIC). I have also been provided with the communications between ASIC and Saracen's solicitors in relation to ASIC's review of the draft Scheme booklet. Clarification was sought by ASIC on the methodology of the independent experts and by the court on whether shareholders were receiving a premium for their shares. Both of these queries were addressed by responses received from Ernst & Young.[59]
[59] Second affidavit of Kirsty Jayne Hall filed 4 December 2020, 'KJH-10'; Fourth affidavit of Kirsty Jayne Hall filed 8 December 2020, 'KJH36'.
I was and am satisfied that there will be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of Saracen.
There is evidence before me as to the due diligence and verification process that was undertaken by both Saracen and Northern Star.[60] On the basis of this evidence, I accept that:
(a)Saracen undertook a process of due diligence and verification to verify the accuracy of statements attributable to Saracen in the Scheme booklet;
(b)Northern Star undertook a similar process to verify the statements attributable to it;
(c)appropriate steps have been taken to satisfy Saracen and Northern Star that the Scheme booklet does not omit any material information.
[60] Affidavit of Morgan Scott Ball filed 19 November 2020 [68] - [80]; Second affidavit of Morgan Scott Ball filed 7 December 2020 [6] - [18]; Affidavit of Hilary Fare Macdonald filed 4 December 2020 [14] - [29].
The directors of Saracen have resolved to approve the Scheme booklet in its final form.[61]
[61] Second affidavit of Morgan Scott Ball filed 7 December 2020 [17].
Based on the checklist provided by counsel for Saracen,[62] I was satisfied that the Scheme booklet contained the prescribed information in accordance with s 412(1)(a)(ii) of the Act and sch 8 of the Corporations Regulations 2001 (Cth).
[62] Submissions, Attachment B.
In written and oral submissions, counsel for Saracen drew my attention to some specific matters. I address each of these below.
Merger of equals - No premium for control
The Scheme Consideration does not include a premium to the market price of the Shares prior to the announcement of the Scheme. The reason given for this is that the value of the merger arises from the combination of the assets and operations of the companies, as well as predicted synergies. The predicted synergies fall into four categories: first, strategic and corporate synergies (including tax consolidation benefits); second, bringing the Super Pit, currently owned 50:50 by Saracen and Northern Star, under a single owner; third, procurement savings; and fourth, other operational efficiencies.
The independent expert considered the first three of these synergies and addressed them in its valuation methodology.[63] The fourth is unique to the Scheme and arises from the value that will occur from streamlining operations at the Super Pit, the removal of any issues that might otherwise arise from differing views as to the development and optimisation of the Super Pit, and the ability to lower unit costs for gold production through processing synergies.[64]
[63] Independent Expert Report, s 6 and s 9.2.4.1.
[64] Affidavit of Simon Antony Jessop filed 8 December 2020.
Each of these matters is set out in detail in the Scheme booklet.[65]
[65] Scheme Booklet, [7.6].
In my view, shareholders of Saracen must be properly informed that no premium for control is being paid and the reasons for this, and provided with sufficient information to understand and assess for themselves the value that is said to arise from the proposed merger. Where this is done, it is ultimately a decision for members whether or not to vote in favour of the Scheme.
I consider that the Scheme booklet summarises these matters and that the Scheme is one that sensible business people may consider will be of benefit to shareholders. Accordingly, it should be put to shareholders who can decide whether or not to approve it.
Performance Risk
I was and am satisfied that the nature and terms of the proposed Scheme are such that the shareholders are adequately protected against the risk that they will not receive the Scheme Consideration and have no capacity to sue Northern Star to recover their shares or damages.
In that respect I have had regard to the terms of the Scheme and the Deed Poll. Pursuant to these documents:
(a)Northern Star must enter the name of each Scheme shareholder into the Northern Star share register on the implementation date;[66]
(b)Northern Star is required to issue the Scheme Consideration on the implementation date.[67]
[66] Scheme, cl 4.2(a)(i).
[67] Scheme, cl 4.2(a)(ii).
The Scheme provides that the appointment of Northern Star as sole proxy will occur only following the provision of the Scheme Consideration.[68] This addresses any concern that the incoming board of Northern Star may potentially interfere with the implementation of the Scheme.[69]
[68] Scheme, cl 4.12(a).
[69] Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [No 2] [2018] WASC 388 [28] - [31].
The arrangements under the terms of the proposed Scheme are supported by the Deed Poll. By the Deed Poll, Northern Star covenants in favour of each Saracen shareholder that it will perform all actions attributed to it under the Scheme. There is also an acknowledgement that the Deed Poll may be relied on and enforced by any Scheme shareholder in accordance with its terms and that Saracen and each of its directors may act as agent and attorney to enforce the Deed Poll on behalf of the Saracen shareholders. In my view, the shareholders are sufficiently identified within the Deed Poll to enable them to enforce the Deed Poll as against Northern Star.[70]
Exclusivity provisions and break fee
[70] Property Law Act 1969 (WA), s 11(1).
The MID contains the customary lock up devices in the form of 'no shop', 'no talk', 'no due diligence', 'notification obligations' and 'matching right' provisions. The 'no talk' and 'no due diligence' provisions are subject to a fiduciary carve out. In certain circumstances, a break fee of $57.6 million is payable.
As the Scheme is a merger of equals, Northern Star is subject to similar exclusivity provisions, as well as a break fee of an identical amount.
In considering whether exclusivity provisions impact on the completion of the transaction and the duties of directors, the court has regard to:[71]
(a)the period of the exclusivity, which should be no more than a reasonable period and capable of precise ascertainment;
(b)whether the provisions are subject to an overriding obligation that the directors not breach their fiduciary duties or are otherwise unlawful; and
(c)whether there is adequate prominence given to these provisions in the Scheme booklet.
[71] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29]- [35], [55]; Re Kangaroo Resources Ltd [57] – [61].
In this case, the exclusivity period in the MID is defined and, at most, is a period of 6 months. The 'no‑talk' and 'no due diligence' provisions contain appropriate fiduciary carve‑outs.[72] The exclusivity arrangements are prominently disclosed in the Scheme booklet at sections 4.9 and 10.15.
[72] MID, cl 10.3.
The affidavit of Mr Ball of 19 November 2020 sets out the commercial justification for the exclusivity provisions and the break fee.[73] I accept his evidence that the exclusivity provisions are reasonable and appropriate for a transaction of this nature.[74] The inclusion of these provisions followed arm's-length negotiations in which both parties had the benefit of legal and financial advice.[75]
[73] Affidavit of Morgan Scott Ball filed 19 November 2020 [106].
[74] Affidavit of Morgan Scott Ball filed 19 November 2020 [107].
[75] Affidavit of Morgan Scott Ball filed 19 November 2020 [92].
The amount of the break fee of $57.6 million represents approximately 1% of the equity value of Saracen on 5 October 2020, the day before the Scheme was announced, based on the Scheme Consideration.[76] As such, it is within the generally accepted commercial parameters for break fees.
[76] Affidavit of Morgan Scott Ball filed 19 November 2020 [96].
The court examines break fee provisions to consider whether the provisions operate unfairly or unduly fetter competition.[77]
[77] Re Excelsior Gold Limited [2018] FCA 2064 [61].
In the course of correspondence with ASIC, ASIC raised a concern that, in certain circumstances, the break fee could constitute a naked no vote break fee. In response to ASIC's concerns, Saracen and Northern Star entered a letter deed to amend the MID and address the potential payment to third parties holding between 25% and 50% of Saracen's shares.[78] Specifically, the parties agreed to amend the break fee arrangements of the Scheme to provide that any break fee relating to a third party acquiring an interest in more than 25% (but less than 50%) of the Shares would only be payable to Northern Star if one of the other break fee triggers also applied.[79]
[78] Second affidavit of Morgan Scott Ball sworn 7 December 2020, 'MSB-25'; Supplementary submissions [9] ‑ [16].
[79] Second affidavit of Morgan Scott Ball sworn 7 December 2020, 'MSB-25'.
Given this amendment, I accept the break fee is not excessive and will not operate coercively and that Saracen's potential liability to pay the break fee to Northern Star does not provide a basis for refusing to allow shareholders to vote on the merits of the Scheme.
No collateral benefit which should prevent the approval of the Scheme
The court must examine whether a benefit exists for one shareholder in particular so as to bring into question the overall fairness of the Scheme.[80] To determine whether there is a collateral benefit, the court considers the 'net benefits' test, to ensure that there is no overall disparity in favour of the party to the non‑Scheme transaction.[81] If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[80] Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381 [12] ‑ [16] (Farrell J).
[81] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].
No issue of collateral benefits arises in this Scheme application.
Director benefits and director recommendations
The terms of the MID requires the directors of Saracen to state that the Saracen board unanimously:[82]
(a)consider the Scheme to be in the best interests of shareholders; and
(b)recommend that shareholders approve the Scheme resolution in the absence of a superior proposal and provided that the independent expert's report continued to conclude that the Scheme is in the best interests of shareholders.
[82] MID, cl 4.2.
In respect of the directors of Saracen, senior counsel drew my attention to the fact that if the Scheme is approved by shareholders, Mr Raleigh Finlayson, the current managing director of Saracen, will be appointed as managing director of Northern Star and will receive increased remuneration for this role. In addition, his 2,105,733 Performance Rights will vest and he will be issued with 2,105,733 Shares for nil cash consideration. Both of these matters are prominently displayed in the Scheme booklet's inside cover, the letter from Saracen's chair and at sections 4.10, 7.8(c), 10.19 and 11 of the Scheme booklet.
Senior counsel also drew to my attention that if the Scheme is approved, three of the current non‑executive directors of Saracen, Anthony Kiernan, Sally Langer and John Richards, will be appointed as non-executive directors of Northern Star. Each of these non-executive directors are also entitled to NED Share Rights which will either vest on 1 January 2021 (and will be acquired under the Scheme unless sold prior to this) or be cancelled and be replaced with equivalent fees in cash.
In relation to the remuneration proposed to be paid by Northern Star to each of these directors, the amounts are not out of the ordinary and are commercially not unreasonable. I note that the terms of Mr Finlayson's appointment were negotiated on an arm's‑length basis having regard to a benchmarking report from an external remuneration consultant, the fees proposed to be paid to the three non‑executive directors are consistent with Northern Star's existing policy and that none of the arrangements were finalised until after the MID was executed.[83] Further, in a proposed merger of equals, it is usual and commercially rational for the board of directors of the merged entity to comprise directors from both companies.
[83] Affidavit of Morgan Scott Ball filed 7 December 2020 [20]-[25].
In relation to the Performance Rights, these rights arise as a result of the cancellation of performance rights which were granted well before the MID was entered into. The rights to be received by the directors are in substitution for existing rights held by each of them.
Finally, importantly, each of these matters are fully and prominently disclosed in the Scheme booklet.[84]
[84] Scheme booklet, inside cover, the Chairman's letter, [4.10], [7.8(c)], [10.19] and [11.15].
For these reasons, it was and is my view that it was not inappropriate for these directors to make a recommendation in respect of the Schemes.
US Securities Act
Senior counsel for Saracen informed the court that, if the proposed Scheme is approved, Saracen and Northern Star intend to rely on s 3(a)(10) of the Securities Act 1933 (USA), which provides an exemption from certain registration requirements under that Act. A condition of the exemption is the court consider the fairness of the scheme of arrangement, which occurs at the second court hearing.
For the purposes of the first court hearing, it is sufficient to record that I have been informed that Saracen and Northern Star intend to rely on the exemption provided by s 3(a)(10). Further consideration of this matter will otherwise be dealt with at the second hearing (assuming that the members approve the proposed Scheme by the requisite statutory majorities).
Other matters
Counsel for Saracen drew my attention to the 'deemed warranty' provision in the proposed Scheme.[85] The warranty provision is disclosed in the Scheme booklet.[86] Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[87]
[85] Scheme, cl 2.13.
[86] Scheme booklet, 'Frequently Asked Questions', p 16.
[87] Re APN News and Media Ltd [57] - [63]; Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34 [23]; Re Nzuri Copper Ltd [2019] WASC 189 [90]; Re Macquarie Private Capital A Ltd [2008] NSWSC 323 [13] - [14]; Re Doray Minerals Ltd; Ex Parte Doray Minerals [2019] WASC 57 [71].
In addition, the Scheme provides that, to the extent permitted by law, the Saracen shares will transfer free from encumbrances and restrictions on transfer of any kind.[88] The terms of this clause is in standard terms and includes the opening words 'to the extent permitted by law'. The inclusion of these words address the concern that has previously been expressed as to whether third parties may otherwise gain the impression that their rights have been extinguished.[89]
[88] Scheme, cl 2.14.
[89] Re Investa Properties Ltd [2007] FCA 1104 [25] - [30]; Re Scarborough Equities Ltd [No 2] [2009] FCA 484 [9] - [10].
Additionally, the plaintiff sought orders pursuant to s 1319 of the Act for electronic dispatch of the Scheme booklet. I note that these orders are now common.[90] Details were provided as to the terms of the proposed electronic notification.[91] I was satisfied, having read the terms of the proposed email communication to shareholders, that an order for electronic dispatch of the Scheme booklet was appropriate.
[90] See, for example, Re SRG Ltd, [48]; Re Doray Minerals; Ex parte Doray Minerals [72].
[91] Submissions, [97].
Taking into account all of these matters, I considered that there was no apparent reason why the Scheme should not, if the necessary special resolution of shareholders is passed, receive the court's approval.
Conclusion on First Hearing
At the hearing before me, I was satisfied that the substantive and procedural requirements under s 411(1) of the Act had been satisfied and that the proposed Scheme was fit for consideration by Saracen's members.
For these reasons, at the conclusion of the hearing on 9 December 2020, I made orders in terms of 'Annexure A' to this judgment in respect of the Scheme.
ANNEXURE A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ME
Associate to the Honourable Justice Hill
8 JANUARY 2021
9
20
4