Re Symbion Health Limited (No 1, No 2, No 3, No 4)
[2007] VSC 571
•27 November 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL DIVISION
CORPORATIONS LIST
No. 8851 of 2007
| IN THE MATTER OF SYMBION HEALTH LIMITED ACN 004 073 410 | |
| SYMBION HEALTH LIMITED ACN 004 073 410 | Plaintiff |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 October 2007 | |
DATE OF JUDGMENTS: | 26 October 2007 | |
CASE MAY BE CITED AS: | Re Symbion Health Limited (No 1), (No 2), (No 3) & (No 4) | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 571 | |
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Re Symbion Health Limited (No 1)
CORPORATIONS – Application to convene a meeting to consider a scheme of arrangement affecting a takeover of the plaintiff – Scheme of arrangement part of a wider scheme – Role of s 411(17) at the convening of meeting stage – Break fee – Approval of the explanatory statement – ss 411, 411(17) and 412 Corporations Act 2001
Re Symbion Health Limited (No 2)
CORPORATIONS – Scheme of arrangement to affect a takeover the plaintiff – Application to send to shareholders of plaintiff a supplementary explanatory memorandum to meet criticisms of the original explanatory memorandum by a 20 per cent shareholder and competing party to takeover the plaintiff – Obligation on directors to keep proposed scheme members fully and fairly informed of matters in scheme to be consider – ss 411(1) and 1319 of the Corporations Act 2001
Re Symbion Health Limited (No 3)
CORPORATIONS – Scheme of arrangement to affect a takeover of the plaintiff – Second supplementary explanatory memorandum – Rival takeover offer for the plaintiff announced – Directors of plaintiff recommend rejection of rival offer and reasons for the same – Whether proper to include such information in a supplementary explanatory memorandum – Whether information is material to the making of a decision by a member whether or not to agree to the arrangement within the meaning of s 412(1) of the Corporations Act 2001 – ss 411 and 412(1) of the Corporations Act 2001
Re Symbion Health Limited (No 4)
CORPORATIONS – Scheme of arrangement to affect a takeover of the plaintiff – Order made for convening of meeting to consider a scheme – Scheme conditional on prior transaction proceeding – Prior transaction cancelled before date for meeting – Jurisdiction of the court to cancel a meeting – Basis on which scheme proposed totally failed – Meeting cancelled – s 1319 of the Corporations Act 2001
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Cleary v Australian Co-operative Foods Limited (No 2) and (No 3) (1999) 32 ACSR 701
CMPS&F Pty Ltd v. Crooks Mitchell Ltd (1997) 24 ACSR 367
FD Easement & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69
Mincom Ltd v EAM Software Finance Pty Ltd (2007) 61 ACSR 266
Re Consolidated Minerals Proceeding no. 6260/2007, Supreme Court of Victoria
Re Lonsdale Financial Group Limited [2007] VSC 394
Re North Flinders Mines Ltd (1996) 19 ACSR 602
Re Sonodyne International Limited (1994) 15 ACSR 494
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N J O’Bryan SC with Mr P D Crutchfield | Clayton Utz |
TABLE OF CONTENTS
Re Symbion Health Limited (No 1)................................................................................................ 4
THE APPLICATION..................................................................................................................... 4
THE SCHEME................................................................................................................................ 4
THE FUNCTION OF THE COURT............................................................................................ 5
NOTICE TO ASIC......................................................................................................................... 5
PERFORMANCE RISK................................................................................................................ 5
BREAK FEE.................................................................................................................................... 5
SECTION 411(17)........................................................................................................................... 6
CONCLUSION.............................................................................................................................. 6
Re Symbion Health Limited (No 2)................................................................................................ 7
THE APPLICATION..................................................................................................................... 7
PRIMARY’S COMPLAINTS........................................................................................................ 9
JURISDICTION............................................................................................................................ 12
THE PROPOSED SCHEME....................................................................................................... 13
RESPONSE TO PRIMARY’S COMPLAINTS.......................................................................... 14
ORDERS....................................................................................................................................... 17
Re Symbion Health Limited (No 3).............................................................................................. 19
THE APPLICATION................................................................................................................... 19
SECOND SUPPLEMENTARY MEMORANDUM................................................................. 20
PART B STATEMENT................................................................................................................ 20
CONCLUSION............................................................................................................................ 21
Re Symbion Health Limited (No 4).............................................................................................. 22
THE APPLICATION................................................................................................................... 22
JURISDICTION............................................................................................................................ 24
HIS HONOUR:
Re Symbion Health Limited (No 1)
THE APPLICATION
I have before me an application dated 12 October 2007 by Symbion Health Limited (Symbion) seeking an order under s 411 of the Corporations Act 2001 that a meeting be convened and held for the purpose of considering a scheme of arrangement proposed by Symbion.
THE SCHEME
The scheme of arrangement to be put to the members of Symbion is part of a wider scheme between Symbion and Healthscope Limited. In general terms, the wider scheme is as follows. Symbion conducts a range of businesses selling medical goods and services which it has divided into two parts. One part is called the Diagnostics Businesses, which provide pathology and related services. The other part, the consumer and pharmacy businesses, is called the C & P Businesses, which wholesales pharmaceutical goods to pharmacists.
Under the wider scheme, Healthscope is to purchase from Symbion the Diagnostics Businesses for shares in Healthscope. Pursuant to a capital reduction, which will need the approval of shareholders under the Corporations Act 2001, Symbion will distribute in specie to the shareholders in Symbion the shares in Healthscope received from Healthscope for the Diagnostics Businesses (this is referred to as the Diagnostics Transaction).
Under the second part of the wider scheme, the shares in Symbion will be acquired by Lantern Pharmacy Holdings Pty Ltd, a company owned equally by Archer Capital Pty Ltd and Ironbridge Capital Pty Ltd for cash. The acquisition of the shares in Symbion, which by this stage will consist of the C & P Businesses alone, is to be affected by the scheme of arrangement which the proposed meeting of members is to consider (this is referred to as the C&P Scheme).
THE FUNCTION OF THE COURT
At this initial stage, the court should form a view as to whether the court would be likely to approve that scheme if it is approved by the statutory majority of shareholders and is unopposed.[1] To that end Hayne J said in Re Sonodyne International Limited[2]:
In the end the question as presented at this stage of the process of a company propounding and implementing a scheme of arrangement is whether the scheme is such that it could reasonably be supposed by sensible business people to be for the benefit of the clients concerned. That is, the test in the present case is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed by the company is of benefit to its members.[3]
[1]FD Easement & Sons Pty Ltd v. Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69
[2](1994) 15 ACSR 494
[3](1994) 15 ACSR 494 at 499
In my view this scheme satisfies that test. It is the view of the independent expert that the consideration offered for the shares in Symbion is fair and reasonable. The directors are unanimous in their view that the scheme is in the best interests of shareholders. I am satisfied that the scheme is one which should go forward for consideration by the shareholders of Symbion.
NOTICE TO ASIC
I have been informed by Mr O'Bryan, Senior Counsel for Symbion and accept that ASIC has been given the required notices. ASIC has indicated in its usual letter that it does not intend to appear at this hearing.
PERFORMANCE RISK
The scheme provides for an escrow account where the moneys to be paid by Lantern Pharmacy Holdings Pty Ltd will be held before the shares in Symbion are transferred to it.
BREAK FEE
The break fee is one per cent of the total value of the assets being acquired. That rate has been accepted as proper in other cases and has been suggested by the Takeovers Panel as being appropriate in the ordinary case. The directors also consider it is appropriate to agree to that fee.
SECTION 411(17)
In Mincom Ltd v. EAM Software Finance Pty Ltd[4], Fryberg J held that the application of the test laid down in FD Easement & Sons Pty Ltd v. Metal Roof Decking Supplies Pty Ltd[5] required the court at the first stage to consider the likelihood of s 411(17) being satisfied at the subsequent approval stage. I have already expressed my view about that issue in Re Lonsdale Financial Group Limited.[6] In my view, the letter from ASIC[7] satisfies me that it is likely, unless circumstances change, that a statement under paragraph (b) of s 411(17) will be forthcoming at the approval stage.
[4](2007) 61 ACSR 266.
[5](1977) 3 ACLR 69
[6][2007[ VSC 394
[7]Exhibit ARW2
CONCLUSION
In those circumstances, I am prepared to make the orders sought by Symbion.
It had been proposed that I approve the explanatory statement. As the statement is to be registered with ASIC under s 412 of the Corporations Act 2001, it is appropriate in my view, that I leave to ASIC the duty of satisfying itself that the explanatory statement complies with the requirements of the Act.
I confirm that Symbion has undertaken to amend the explanatory statement to record the fact that the threatened proceedings referred to in the explanatory statement now have been issued in the Federal Court of Australia in New South Wales wherein Idameneo No.123 Pty Ltd is the plaintiff and Symbion Health Limited the defendant and that the matter has at this stage been set down for hearing on 15 and 16 November 2007. If that happens and if the judge delivers judgment soon after, the meeting of shareholders will be able to proceed on 30 November 2007 as proposed in the order.
Re Symbion Health Limited (No 2)
THE APPLICATION
On 26 October 2007, I ordered the convening of a meeting of members of Symbion to consider, and if saw fit, approve a scheme of arrangement proposed between Symbion Health Limited, ACN 004073410 (“Symbion”) and its members and the despatch of an explanatory memorandum which is considered in Re Symbion Health (No 1) above.[8]
[8]Re Symbion Health Limited (No 1) [2008] VSC …
By an application dated 9 November 2007, Symbion applies under ss 411 and 1319 of the Corporations Act 2001 for directions regarding the dispatch of a supplementary explanatory memorandum in relation to the proposed scheme.
Mr Norman O'Bryan of Senior Counsel and Mr Philip Crutchfield of counsel appear for Symbion.
Symbion relies on the affidavits of Timothy Angus Paine sworn 9 November 2007 and affidavits of Andrew Robert Wescott sworn 12 and 13 November 2007.
Mr Paine says in his affidavit as follows:
On 26 October 2007 this Honourable court made an order in this proceeding convening a meeting of the shareholders of Symbion Health ("scheme meeting") to be held on 30 November 2007 to consider a scheme of arrangement between Symbion Health and its shareholders. Orders were also made requiring the despatch of an explanatory memorandum and accompanying proxy forms on or before 31 October 2007. The explanatory memorandum contains, among other things, the notice of meeting for the scheme meeting.
Mr Paine swears that on 26 October 2007 Symbion announced to the Australian Stock Exchange (“ASX”) that the court had made orders convening the scheme meeting and that the related explanatory memorandum would be lodged with the Australian Securities and Investment Commission (“ASIC”) later that day. He says that later on 26 October 2007, Symbion Health, lodged with ASIC the explanatory memorandum for the scheme meeting and released it to the ASX.
Paine swears that on 30 October 2007, Symbion completed the despatch of the explanatory memorandum and accompanying proxy forms. Mr Paine swears that at approximately 7p.m. on 31 October 2007, Clayton Utz received a letter from Mallesons Stephen Jaques, the solicitors for Primary Healthcare Limited (“Primary”) in relation to the explanatory memorandum. On 1 November 2007, Primary made a further announcement to the ASX criticising the explanatory memorandum.
On 2 November 2007, Symbion made an announcement to the ASX that responded to the letter from Mallesons Stephen Jaques dated 31 October 2007 and Primary's announcement made on 1 November 2007. On 5 November 2007, Primary made a further announcement to the ASX in response to Symbion’s announcement to the ASX of 2 November 2007.
On 8 November 2007, Primary announced to the ASX that it intended to make a cash offer for the shares in Symbion Health it did not own at $4.10 per share. On 8 November 2007, Symbion announced to the ASX that the Symbion board unanimously recommends shareholders reject Primary's takeover offer.
Mr Paine deposes:
On 8 November 2007 the board of directors of Symbion Health –
(a) approved a draft Chairman's letter and supplementary explanatory memorandum for despatch to the shareholders of Symbion Health containing amongst other things additional information for consideration by those shareholders in determining how to vote at the scheme meeting subject to such further minor amendments to the draft supplementary explanatory memorandum that Symbion Health management may consider appropriate; and
(b) delegated to Symbion Health management the authority to make such further minor amendments to the draft Chairman's letter and supplementary explanatory memorandum that it considers appropriate.
Symbion seeks an order that a document substantially in the form of the supplementary explanatory memorandum comprising exhibit TAP50 to the affidavit of Timothy Angus Paine sworn 9 November 2007 be despatched to shareholders.
PRIMARY’S COMPLAINTS
The letter of 31 October 2007 that Mallesons Stephen Jaques sent to Clayton Utz which has prompted the supplementary explanatory memorandum reads in part as follows:[9]
We refer to the Explanatory Memorandum dated 26 October 2007 in relation to the Revised Proposal a copy of which was lodged with ASX by your client Symbion after market close on that date. For convenience this letter adopts some of the terminology used in the Explanatory Memorandum. As you would be aware our client Primary Healthcare Limited through its wholly owned subsidiary Idameneo No.123 Pty Ltd, holds 20 per cent of Symbion's ordinary shares. As such Primary has a significant interest in ensuring that Symbion, and its directors, have disclosed to the shareholders of Symbion all information material to a Symbion shareholders decision how to vote on the Revised Proposal.
In the time that Primary and its advisors have had to review the Explanatory Memorandum (some 404 pages in all) Primary has identified a number of material deficiencies in the information presented to shareholders (and the market) in that document. The purpose of this letter is to bring these deficiencies to Symbion's attention so that they may be rectified immediately.
1 Misleading presentation of the valuation of the Revised Proposal
Symbion's treatment in the Explanatory Memorandum of the Independent Expert’s Report runs counter to the policy evinced by decision of the courts and the Takeovers Panel and regulatory statements of ASIC, namely that information generated by Independent Experts and in particular valuation information ought to be fully and fairly disclosed to shareholders. As a result of this treatment, the Explanatory memorandum is materially deficient and misleading in its disclosure of the valuation of the Revised Proposal.
In particular:
(References to the Independent Expert’s Report creating a misleading impression of supporting this Symbion directors' valuation range) throughout the main body of the Explanatory memorandum, (its first 154 pages), there are repeated and prominent statements by the Symbion directors of the shareholders of Symbion receiving “a total implied value of between approximately $4.23 and $4.43 per Symbion Health share” in the event that both the Diagnostics Transaction and the C&P Scheme are completed (“Implied Valuation Range”). There are also repeated statements to the effect that the Independent Expert has concluded that the Diagnostics Transaction is fair and reasonable and that the C&P Scheme is in the best interests of Symbion shareholders. The impression given to an ordinary shareholder is that the Independent Expert supports the Implied Valuation Range, however this is clearly incorrect; ….
[9]Exhibit TAP 44
There follows five further dot points which elaborate on this criticism.
Under the heading of, “Deficient disclosure of the outcome for Symbion shareholders in the event that favourable ATO rulings are not received for the Diagnostics Transaction”, the letter says:
The Explanatory memorandum is also deficient and misleading in the disclosure of the impact of the ATO rulings as:
· the Explanatory Memorandum gives to shareholders reading it a clear impression that the directors of Symbion will not allow the Diagnostics Transaction to be voted on by Symbion shareholders, let alone proceed, unless favourable ATO rulings have been received. However, it is only after a careful and close reading of the document that it becomes apparent that that directors of Symbion have reserved to themselves the right to proceed otherwise than in accordance with that impression and therefore the failure of the Explanatory Memorandum to clearly dispel that impression is misleading.
The letter proceeds under seven other dot points to elaborate on this criticism.
Under the heading of, “Rectification”, the letter says:
In order to prevent Symbion shareholders in the market from being further mislead as to the value of the Revised Proposal, Primary requires Symbion to take immediate corrective action by way of supplementary disclosure sent to all Symbion shareholders to rectify the material deficiencies in the Explanatory Memorandum outlined in this letter.
In the event that Symbion does not take such corrective action, Primary will take whatever action it believes necessary in the interest of all Symbion shareholders to ensure that Symbion shareholders have full and proper disclosure of all information material to their vote on the Revised Proposal.
Under the heading of, “Further matters may arise”, the letter concludes:
It may be that Primary's further review of the Explanatory Memorandum will raise other issues of concern.
Following that letter, and as indicated in Mr Paine's affidavit, Primary Health Care Limited made an announcement dated 1 November to the ASX as follows:[10]
[10]Exhibit TAP 45
PRIMARY RAISES CONCERNS IN RELATION TO THE CONTENT OF SYMBION’S EXPLANATORY MEMORANDUM
Primary announced today that on 31 October 2007 Primary's lawyers wrote to Symbion Health Limited (“Symbion”) seeking corrective supplementary disclosure to Symbion's Explanatory Memorandum relating to Symbion's Revised Proposal.
Primary has raised a number of concerns in relation to the content of the Explanatory Memorandum which Primary believes have the potential to materially mislead Symbion shareholders.
In particular Primary believes Symbion's presentation of the valuation of the Revised Proposal is misleading, as the Independent Expert's unbiased assessment of the value range of the Revised Proposal is not disclosed until page 171 of the Explanatory Memorandum. The presentation of the main body of the Explanatory Memorandum gives the impression that the Independent Expert supports the Symbion directors implied value range when in fact it clearly does not.
Primary notes that Symbion, and the Independent Expert, have misstated the implication of Primary's voting intention in relation to the Revised Proposal as announced on 22 October 2007. Primary wishes to state once again that it intends to vote against the C&P proposal, irrespective of whether or not the Diagnostics Proposal is approved.
That statement is qualified by the following footnote: “Absent a material change in the circumstances or in the structure of the Revised Proposal”. The body of the notice continues.
In these circumstances the Independent Expert has assessed the value of the Revised Proposal as low as $3.54 per share, which contrasts with and completely detracts from the credibility of the bottom end of the Symbion's directors’ purported implied value range for the Revised Proposal of $4.23 per share.
Primary is also concerned that the Explanatory Memorandum gives Symbion shareholders a clear impression that Symbion will not allow the Diagnostics Transaction to proceed, unless favourable tax rulings have been obtained. However, it is apparent from a careful reading of the documents that the Symbion directors have reserved the right to proceed without the tax rulings. There is no disclosure of the impact on the Symbion shareholders of the transaction proceeding in circumstances where favourable rulings are not obtained.
Primary continues to believe that the Revised Proposal does not provide an attractive and executable outcome for Symbion shareholders.
When the matter first came before me, the proposed supplementary explanatory statement[11] contained a letter from the Chairman, Mr Paul McClintock, the Chairman of Symbion. The draft at that stage said:
[11]Exhibit TAP 50
On 31 October 2007, Symbion Health received a letter from Primary Health Care's lawyers, which claimed that Primary Health Care had identified certain deficiencies in the information set out in the Explanatory Memorandum. Primary Health Care subsequently issued an ASX release on the 1st and 5 November, re-stating the alleged deficiencies.
These alleged deficiencies relate to the presentation of the valuation of the Revised Proposal, the disclosure of the outcome for Symbion shareholders in the event that favourable ATO rulings are not received for the Diagnostics Transaction, and the disclosure of the implications of the voting intentions of Primary Health Care.
Mr McClintock said:
Symbion Health rejects Primary Health Care's suggestion that these matters were not clearly and comprehensively disclosed in the Explanatory Memorandum. Nevertheless in order to address Primary Health Care's claims, the enclosed Supplementary Explanatory Memorandum restates and elaborates on certain information contained in the Explanatory Memorandum (including the Independent Expert’s Report).
As I understand the submissions of counsel, that is what the letter and the supplementary explanatory memorandum seek to do.
JURISDICTION
As to my jurisdiction to make the orders sought, I was referred to the decision of Austin J of the Supreme Court of New South Wales in Cleary v. Australian Co‑operative Foods Limited[12] which confirms that the duty of directors, to bring to the attention of members and the court any change of circumstances which is material to the members' decision under a scheme of arrangement, continues until the members have taken their decision and the court has approved the scheme.
[12](1999) 32 ACSR 701
Austin J said as follows[13]:
[51] It appears to me preferable for any obligation of Dairy Farmers with respect to corrective materials to be undertaking in the proceedings to which the disclosure of information is primarily related, namely the proceedings constituted for the court's approval of the schemes of arrangement involving members and MCU holders, No 2882/99. Because of the supervisory jurisdiction to which I have referred the court is able to give directions at the second hearing for a further procedure to be undertaken to ascertain the true will of the members and MCU holders. In principle it appears to me that the same supervisory jurisdiction authorises the court to make appropriate orders at an earlier time upon application. For the reasons given in my judgment of 12 October 1999 the directors of a corporation which has embarked upon a scheme of arrangement have an obligation to disclose to the members or creditors affected by the scheme any material new development occurring after the despatch of the explanatory statement and notice of meeting and before the scheme is approved. I do not suggest that before doing so the directors are obliged to make an application to the court. However in a case such as the present, where there is a substantial dispute already on foot, directors who wish to discharge their obligation to disclose material information may well think it prudent to apply to the court for directions.
[52] If an application to the court for directions with respect to the disclosure of supplementary information about a material new event were to be made, the court would be able to deal with the application by virtue of its supervisory jurisdiction. It would not be appropriate for the court to confer any imprimatur on the supplementary disclosure documents, just as no imprimatur is conferred on the scheme or the original explanatory statement when the court orders that a meeting be convened to consider this scheme Re Sonodyne International Limited (1995) 15 ACSR 494 at 497. However directions with respect to the despatch of supplementary material were obtained, the directions would have the same general effect, in one respect, as the court orders have when they are made at the first hearing in response to an application for the convening of the scheme meeting. The court ought not to give directions with respect to the convening of the scheme meeting unless the scheme is of such a nature and is cast in such terms that, following approval at the meeting, the court would be likely to approve it on an unopposed application: FT Eastment & Sons Pty Ltd v. Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72; Re Linter Textiles Corp Ltd [1991] VR 561; (1990) 4 ACSR 99; Re Price Mitchell Pty Ltd [1984] 2 NSWLR 273; (1984) 9 ACLR 1; Re Sonodyne International Ltd (1995) 15 ACSR 494.
[53] Though these cases refer to the scheme itself, the principle of the cases seems to me to be equally applicable to the explanatory statement which accompanies the scheme, since the statement is reviewed and (in the case of company) approved by the court. Adopted to the present circumstances the principle implies that a court should not direct the despatch of supplementary disclosure material unless it is of the view that if those materials are despatched in a timely fashion and he scheme has approved the relevant meeting or meetings, it would approve the scheme on an unopposed application.
[13]Ibid [51]-[53]
I accept, therefore, that I have jurisdiction to give directions in the existing proceedings seeking an order for meetings. Although liberty to apply was not reserved, it is always implicit in such an ongoing matter.
THE PROPOSED SCHEME
Symbion conducts two businesses, one it describes as the Diagnostics Businesses, and the other, its pharmaceutical business, is described as the C&P Businesses. Symbion has put forward a proposal to its members which if accepted will see its shareholders receiving shares in Healthscope Limited (“Healthscope”) and $1.77 for each share they hold in Symbion. The total value of the consideration to be received for each share will depend upon the value of the Healthscope shares at the time of the approval of the scheme, and in particular the volume weighted average price (“VWAP”).
This transaction is to be affected in two stages. First, Healthscope is to acquire from Symbion the Diagnostics Businesses in exchange for Healthscope shares which will be distributed by way of a capital reduction to the Symbion shareholders. The second stage involves the proposed scheme of arrangement, which is the subject of the court order for meetings, whereby the Symbion shareholders will transfer their shares to a body called the IAC consortium for $1.77 per share. At that stage, the only asset of Symbion will be its C&P Businesses.
RESPONSE TO PRIMARY’S COMPLAINTS
The directors say that the implied value that each shareholder in Symbion will receive is between $2.46 and $2.66 for each Symbion Health share. As indicated above, generally speaking, Primary has complained that insufficient prominence was given to the Independent Expert’s valuation of the Revised Proposal giving a range of $3.54 to $4.45 as compared to the implied value of $4.23 per share put forward by the directors. The amended form of the Chairman’s letter summarises Primary’s complaints and in my view now adequately responds to them.
The amended form of the Chairman's letter now reads:
On 31 October 2007, Symbion Health received a letter from Primary Health Care's lawyers which claimed that Primary Health Care identified certain deficiencies in the information set out in the Explanatory Memorandum. Primary Health Care subsequently issued an ASX release on 1 November 2007 summarising Primary Health Care's concerns. Symbion Health issued an ASX release responding to these issues on 2 November 2007. Primary Health Care issued a further ASX release on 5 November 2007, copies of these announcements are attached to this letter.
Symbion Health rejects Primary Health Care's claims. Nevertheless in order to address them the enclosed supplementary Explanatory Memorandum restates and elaborates upon certain information contained in the Explanatory Memorandum including the Independent Expert’s Report as well as providing clarification on some additional matters and providing updates on further developments.
In relation to the allegations made by Primary Health Care in relation to disclosure in the Explanatory Memorandum I note:
· Primary Health Care criticises the implied valuation range of $4.23 to $4.43 per Symbion Health share used by the Symbion Health board to support the recommendation of the Revised Proposal to Symbion Health shareholders given amongst other things. Primary Health Care's stated intention is to vote against the Revised Proposal absent a material change in circumstances or in the structure of the Revised Proposal. Section 3 of the supplementary Explanatory Memorandum sets out for Symbion Health shareholders the reasons for the implied valuation of the Revised Proposal used by the Symbion Health Board. It also sets out the various assumptions upon which the valuation is based including an assumption that both the Diagnostics Transaction and the C&P Scheme proceed.
· Primary Health Care alleges that the various valuations relied on by the Independent Expert in forming its opinions that the Diagnostics Transaction is fair and reasonable to Symbion Health shareholders, and that the C&P Scheme is in the best interests of Symbion Health shareholders were not given enough prominence in the Explanatory Memorandum. Section 4 of the supplementary Explanatory Memorandum sets out the valuations relied upon by the Independent Expert as well as the other factors that were taken into account by the Independent Expert in forming its opinion. The Independent Expert arrived at an overall value of the Revised Proposal of between $3.96 and $4.45. The Independent Expert also undertook a valuation on the assumption that the Diagnostics Transaction proceeds but the C&P Scheme does not. The Independent Expert valued that scenario at between $3.54 and $4.45. The low end of that valuation is a combination of the low end of the Independent Expert's valuation of the Diagnostics Transaction (including a premium for control) and a trading valuation for Symbion Health C&P at a low multiple (which does not include a premium for control), a scenario which the Independent Expert considers to be unlikely.
· Primary Health Care alleges that Symbion Health and the Independent Expert misstated the implications of Primary Health Care's voting intention in relation to the revised proposal. Section 5 of the Supplementary Explanatory Memorandum restates those voting intentions and the implications of those voting intentions.
· Primary Health Care alleges that there ought to be calculations done to show a valuation based upon the assumption that the Healthscope VWAP is below $5.30. Symbion Health has the right not to proceed with the Revised Proposal if the Healthscope VWAP falls below $5.30 (see s.3.1 of the supplementary Explanatory Memorandum).
· Primary Health Care alleges that the Explanatory Memorandum does not disclose the outcome for Symbion Health shareholders in the event that favourable ATO rulings are not received in respect of the Diagnostics Transaction as elaborated upon in section 6 of the Supplementary Explanatory Memorandum, the Symbion Health Board will not proceed with the Revised Proposal unless ATO rulings are obtained.
During the hearing, I observed that it would be appropriate to identify precisely the complaints made by Primary Health Care and to precisely respond to them in the supplementary explanatory statement. Consequent upon amendments being made to the chairman’s letter, I am satisfied his explanation and the other material in the Supplementary Explanatory material does address adequately the issues raised by Primary Health Care.
Returning to Cleary v Australian Co‑operative Foods No2[14] Austin J said as follows:
[26] The defendants' principal submission on this subject began with the proposition, asserted in many cases including Fraser v NRMA Holdings Ltd (1995) 55 FCR 452; 127 ALR 543; 15 ACSR 590 that directors of a corporation who seek the approval of its members must provide such material information as will fully and fairly inform the members of what is to be considered. At least in the context of the scheme of arrangement under the Corporations Law, the directors' duty continues until the members have taken their decision and the court has approved it, in the sense that they must bring to the attention of the members and the court any change of circumstances which is material to the members' decision. Re M B Group Plc [1989] BCLC 672 at 680; Re Jessel Trust Foundation Investment Co Ltd [1974] PR 331 at 338’ Sengate Pty Ltd v Southern Equity Holdings Ltd [1998] SASC 6993 (FC). The same principle applies to a scheme of arrangement under Pt 13 of the Act, having regard to s 368, according to which the court's jurisdiction under Pt 13 is intended to complement its jurisdiction under the Corporations Law and should be exercised in harmony with that jurisdiction.
[14](1999) 32 ACSR 701
I accept these propositions and in particular the continuing obligation on the directors to fully and fairly inform the members of what is to be considered.
As indicated above, Primary Health Care Limited, a 20 per cent shareholder in Symbion Health, has alleged that the explanatory memorandum contains material deficiencies in the information presented to Symbion’s shareholders and that Primary have requested and insisted that Symbion via a supplementary statement rectify those matters immediately.
In my view, the supplementary memorandum seeks to put to rest any doubt about the matters raised by Primary Health Care, if there was any substance to them. I do not believe I have to find or form a view as to whether the initial explanatory statement does or does not contain material deficiencies as alleged. The allegations have been made by a 20 per cent major shareholder that has announced a potential competing takeover offer. I believe it is appropriate that the directors seek to clarify the matters raised by Primary Health Care Limited to ensure that the shareholders are fully and fairly informed of what is to be considered. I have used the words “fully and fairly informed” as taken from the decision in Cleary v Australian Co‑operative Foods Limited No2.[15]
[15](1999) 32 ACSR 701
ORDERS
I think it is appropriate that the exhibits TAP45, 46, 47, 48, and 49 containing the various announcements to the ASX be annexed to the supplementary explanatory statement Symbion intends to release to keep the shareholders fully informed of what has been happening in the market place. I reflected on whether or not the letter of 31 October from Primary Health Care Limited solicitors to Clayton Utz should also be annexed. Counsel for Symbion Health urged that I not do so. They pointed out that Primary Health Care Limited chose not to release the document. They also pointed out to me that it could be confusing. I accept that the letter is repetitive in nature and that the elaborations it makes upon it could confuse shareholders.
I have, therefore, formed the view that it is not necessary for Symbion to disclose that letter to its shareholders to fully and fairly inform its members of the matters relevant to their consideration of the scheme of arrangement. As I said earlier, I am satisfied that the Chairman's letter and the balance of the supplementary explanatory statement sufficiently identifies the matters raised by Primary Health Care Limited in their letter to the solicitors and in their statements to the ASX. Therefore, for the reasons I have given I propose to make the orders sought.
Consistent with the decision in Cleary v. Australian Co‑operative Foods Limited (No 2) and (No 3)[16] and applying the accepted test set out by Sir Laurence Street in FT Eastment & Sons v. Metal Roof Decking Supplies Pty Ltd,[17] I am satisfied that the scheme as described in the supplementary explanatory statement and initial explanatory statement is such that if it is approved by the statutory majority, and if unopposed, is likely to be approved by this court.
[16](1999) 32 ACSR 701
[17] (1977) 3 ACLR 69
The order presented to me for signing has been amended to accommodate matters that were raised during the hearing. In particular, under “Other matters” the order now says:
At the request of the Australian Securities and Investment Commission (“ASIC”), and subject to any further direction of the court, Symbion Health Limited via Mr Crutchfield of counsel undertook to issue a further supplementary Explanatory Memorandum, which contains an update to the Independent Expert’s Report in relation to the Revised Proposal (as that term is defined in the Explanatory Memorandum dated 26 October 2007) which further supplementary Explanatory Memorandum will be registered with ASIC, and announced to the ASX as soon as practicable, and in any event no later than 20 November 2007 and despatched to shareholders as soon as practicable thereafter.
The first order of the court will be:
Upon being registered with the Australian Securities and Investments Commission, a document substantially in the form with a supplementary explanatory memorandum comprising Exhibit ARW7 to the affidavit of Andrew Robert Westcott sworn 13 November 2007 (“supplementary explanatory memorandum”) be despatched in accordance with Orders 2 and 3 below.
Orders in 2 and 3 deal with how the memorandum is to be sent out, and the orders I make will be in the form of the order I initial and place on the file. I will add as order 5, liberty to apply be reserved.
I should also add as a final word the word of caution that was given by Austin J in the Cleary case, that nothing I have said in my judgment should be taken as any imprimatur on the proposed scheme, and I think that is an important point to make in view of the fact that this is, in a general sense, a contested takeover situation where Healthscope is on one side and Primary Health Care is on the other, both seeking to in one way or other to takeover Symbion Health Limited.
Re Symbion Health Limited (No 3)
THE APPLICATION
Under the liberty to apply reserved on 13 November 2007 I have before me an application by Symbion Health Limited (“Symbion”) to dispatch to its shareholders a second supplementary explanatory memorandum.
On 13 November 2007, I directed that a first supplementary explanatory memorandum be dispatched to shareholders. That memorandum was consequent upon Primary Health Care Limited (“Primary”) making complaints to Symbion and to the public through an ASX announcement that in its opinion the explanatory memorandum provided to Symbion’s shareholders in relation to the proposed scheme of arrangement was materially deficient. The reasons why that was said to be the case and why I authorised the release of the first supplementary explanatory memorandum are set out in Re Symbion Health Limited (No 2) above.
I will not go through the reasons why that was said to be the case, nor why I authorised the release of the first supplementary explanatory memorandum as those reasons are in the judgment I gave on 13 November 2007.[18][18]Re Symbion Health Limited [2007] VSC 571
During that hearing, however, I was informed that ASIC required that the independent expert’s report be updated to take account of the fact that Primary had itself made a foreshadowed takeover offer for the shares of Symbion at $4.10 per share subject to some seventeen conditions. That requirement was reflected in other matters in the order I made on 13 November 2007.
I was also informed at that time that Symbion would be seeking to include in a second supplementary memorandum information for shareholders to assist them in making a decision whether or not to accept or agree to the proposed scheme of arrangement in light of the counter-proposal being put forward by Primary in its foreshadowed takeover offer.
SECOND SUPPLEMENTARY MEMORANDUM
I have now before me a proposed second supplementary memorandum which does that, and no more. The document does acknowledge and inform shareholders, which is entirely proper, that the Board of Symbion has resolved and recommended to its shareholders that the offer of Primary Health Care should be rejected.
The initial draft before me made comparisons between the proposal being put forward by Symbion to its shareholders and why Symbion’s proposal is superior to the takeover offer by Primary and then, in a general sense, kept repeating the mantra that shareholders should reject the offer of Primary.
When this first came before me, I drew Symbion’s attention to the fact that the explanatory memorandum should be limited to providing shareholders with information that is material to the making of a decision by them whether or not to agree to the arrangement which was being put forward. Section 412(1) of the Corporations Act 2001 requires the explanatory statement to include information “that is material to the making of a decision by a … Member whether or not to agree to the … arrangement”. It may well have been a matter of form over substance, but I am of the view that the proper approach is to provide the shareholders with the relevant information coupled with the Board’s recommendation that for those reasons the shareholders should accept and vote for the scheme. I do not think it appropriate for the Board to use the supplementary memorandum to urge shareholders to reject the rival takeover offer.
PART B STATEMENT
I was concerned to ensure that the document should not purport to be a Part B response by a takeover target. That has now been done to my satisfaction. I note, however, that Primary issued an ASX announcement dated 20 November 2007 which, amongst other things, says as follows:
Primary also believes that Symbion should postpone the shareholder meeting scheduled for 30 November 2007 as the supplement does not provide the detailed views of the Symbion directors regarding Primary's offer. In view of the timing of the 30 November meetings Symbion shareholders need to receive the same level of assessment of Primary's offer as they would in a target statement. Symbion itself has stated in the supplement that a target statement will be sent to Symbion shareholders containing all material information known to the directors of Symbion. However, this is disingenuous because Symbion knows that shareholders need that information before they vote. Primary gave its bigger statement to Symbion on 8 November 2007.
I have not heard argument on this point, nor is Primary Health Care before me, but my preliminary view is that the second supplementary statement does provide the detailed views of the Symbion directors regarding Primary’s offer. My other tentative view is, and at this stage I have not looked at the requirements of the Corporations Act 2001 as to what is to go into a Part B target statement, but insofar as information is to be given to shareholders comparing the offers, my tentative view is that the shareholders will receive the same level of assessment of Primary’s offer as they would in a target statement, or, if not, then in substance the same.
But, be that as it may, I think in the circumstances where there is this takeover battle going on it is obviously in the interests of shareholders to be informed of the views of the directors of the target company on the respective benefits and advantages of both proposals.
In my view, the information that is sought to be provided to the shareholders in the second supplementary memorandum is material without which it might be said that the shareholders may be deprived of material information known to the directors but not known to the shareholders.
CONCLUSION
I understand that there will be no further applications to me for further supplementary explanatory memoranda in view of the fact that the scheme meeting is to be held in some ten days time.
For those reasons, I am prepared to give the directions sought in the draft minute of order handed to me.
Re Symbion Health Limited (No 4)
THE APPLICATION
I have before me an application under s 1319 of the Corporations Act 2001 to vacate certain orders that I made on 26 October 2007 on the application of Symbion Health Limited (“Symbion”) convening a meeting of members to consider, and if thought fit, approve of a scheme of arrangement between
theSymbion and its shareholders.
The scheme was part of a bigger proposal which is examined in my reasons for ordering the convening of a meeting in Re Symbion Health Limited (No 1) above.[19] The first limb was the Diagnostic Proposal whereby the Diagnostic Businesses of Symbion were to be sold to Healthcare Limited (“Healthcare”) in exchange for shares in that company, and those shares were then going to be distributed to shareholders of Symbion.
[19]Re Symbion Health Limited [2007] VSC …
The shareholders of Symbion would
then havestill retainedtheir shares in Symbion.butHowever, at the scheme meeting, which was to follow immediately after the meeting to approve the capital reduction, they would consider the scheme of arrangement for two fund managers to acquire their shares for $1.77 per share. The fund managers would thereby acquire Symbion, which at that stage would consist of its pharmaceutical businesses, the diagnostics businesses having been agreed to be sold to Healthcare under the first part of the proposal.
The first leg was conditional upon the sale and transfer of the Diagnostics Businesses, which were in a subsidiary company of Symbion being allowed capital gains rollover relief. Putting it very broadly, the transaction was conditional on it not attracting capital gains tax. The transaction was subject to a ruling by the Tax Office that such tax would not be paid. In the event of an unfavourable ruling by the Tax Office, the parties were entitled to terminate that Diagnostics Transaction. The Tax Office has issued an unfavourable ruling and
thatthe parties have elected to terminate the Diagnostics Transaction.
The scheme of arrangement meeting was conditional upon the Diagnostics Transaction proceeding. It is not now proceeding for reasons I have explained.
As far as I can see, it would not be feasible for the members to amend the terms of the proposed scheme. The scheme provided for the acquisition
in a substanceof the pharmaceutical businesses for $1.77 per share. Now Symbion will still retain the DiagnosticssBusinesses and the scheme could not be amended as the whole basis of it has fallen away.
I have before me an affidavit of Timothy Angus Paine sworn 27 November 2007, which says:
(2)On 8 October 2007, Symbion Health entered into a Transaction Implementation Deed with Healthscope Limited (“Healthscope”) pursuant to which the parties agreed to implement the Diagnostics Transaction.
I have already referred generally to what that transaction is. He then says:
(3)On 8 October 2007, Symbion Health entered into a Scheme Implementation Deed with Lantern Bidco Pty Ltd pursuant to which Symbion Health agreed to propose and implement a proposed scheme arrangement between Symbion Health and its shareholders (C&P Scheme".
(4)On 26 October this honourable court ordered that Symbion Health convene a meeting of shareholders to be held on Friday, 30 November 2007 to consider, and if thought fit approve the C&P Scheme by sending an explanatory memorandum to shareholders (“Explanatory Memorandum”) to shareholders.
(5)The conditions precedent to the C&P Scheme are set out on page 380 of the Explanatory Memorandum and included a condition that the Scheme Implementation Deed not have been terminated.
(6)Clause 4.1(n) of the Scheme Implementation Deed is reproduced on page 353 of the Explanatory Memorandum. That clause provides for a condition precedent requiring the completion of the Transaction Implementation Deed or similar documents ordered into between Symbion Health and a Superior Diagnostics Acquirer (as that term is defined in the Scheme Implementation Deed).
(7)Clause 4.1(n) of the transaction implementation deed is reproduced on page
.306 of the explanatory memorandum. That clause provides for a condition precedent relating to the issue by the Australian Taxation Office of a private ruling confirming Symbion Health's entitlement to CGT rollover relief in respect of capital proceeds to be received on the disposal of shares by Symbion Health pursuant to the diagnostics transaction.(8)On 13 November 2007, this honourable court ordered that a supplementary explanatory memorandum be dispatched to shareholders. The explanatory memorandum has been dispatched in accordance with the orders made on 13 November 2007.
(9)On 20 November 2007, this honourable court ordered that a second supplementary explanatory memorandum be dispatched to shareholders, the second supplementary explanatory memorandum has been dispatched to shareholders in accordance to the orders made on 20 November 2007.
(10)On 23 November 2007, Symbion Health received a confidential private ruling fro
orm the Australian Taxation Office inIrespect of CGT rollover relief, which indicated that Symbion Health would not be entitled to CGT rollover relief in respect of capital proceeds to be received on the disposal of shares by Symbion Health pursuant to the diagnostics transaction.
I was taken to that confidential exhibit. I am satisfied that that is the substance of the Australian Tax Office's private ruling.
On 27 November 2007, Symbion, Healthscope and Lantern executed a deed terminating the Transaction Implementation Deed and the Scheme Implementation Deed and Symbion made an announcement to the ASX that it would not proceed with the Diagnostics Transaction or the C&P Scheme.
A copy was tendered of the counterpart of the deed executed on 27 November 2007 by Symbion, Healthscope and Lantern.
Mr Paine continues, that the Symbion Health Board has resolved that, subject to the order of the court, the C&P Scheme meeting be cancelled, and the chairman of Symbion Health has approved a letter to shareholders to be dispatched, subject to the order of the court, which has been printed ready for dispatch. A copy of that proposed letter was tendered.
JURISDICTION
What is the jurisdiction of the court to make such an order? I have been referred to Re North Flinders Mines Ltd[20], a decision of Debelle J of the Supreme Court of South Australia, and to CMPS&F Pty Ltd v. Crooks Mitchell Ltd[21], a decision of Burchett J of the Federal Court of Australia. Finally I was referred to Re Australian Gas Light Company[22], a decision of Emmett J of the Federal Court of Australia.
[20](1996) 19 A
.C.S.R.602[21]24 ACSR 367
[22](2006) 57 A
.C.S.R 67
In Re North Flinders Mine Ltd, Debelle J doubted whether the court had power to revoke an order convening a meeting to consider a scheme. Debelle J did not have his attention drawn to s
.1319 of the Corporations Act 2001.
In both the CMPS&F Pty Ltd case and the Re Australian Gas Light Company case, the power of the court to revoke orders was confirmed, particularly in circumstances where the meeting would be futile. As I indicated earlier, the scheme meeting would be futile because the condition precedent to it has not been satisfied, that is the Diagnostics Transaction is not going ahead.
That
atbasis for the scheme was thatitthe Diagnostics Transaction had gone ahead. The shareholders could then consider whether or not to dispose of their shares in the company, which at that stage would only hold the pharmaceutical business. I was also referred to a decision in this court in Re Consolidated Minerals[23] earlier this year.I was informed by Mr Crutchfield that the Supreme Court vacated orders for scheme meetings in circumstances where the meetings were, and this is my word, futile.
[23]Proceeding no. 6260/07, Supreme Court of Victoria
Accordingly, I am prepared to make the orders sought. It is unnecessary for me to go through those in any detail. In substance, they vacate the orders which
have still got some -are still to be carried out for the purposes of convening and holding the meetings.
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