Re Tatts Group Ltd
[2017] VSC 552
•18 September 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
REDCREST CORPORATIONS LIST
S ECI 00157 2017
| IN THE MATTER OF TATTS GROUP LIMITED (ACN: 108 686 040) | |
| TATTS GROUP LIMITED (ACN: 108 686 040) | Plaintiff |
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JUDGE: | Sifris J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 September 2017 |
DATE OF JUDGMENT: | 18 September 2017 |
CASE MAY BE CITED AS: | In the matter of Tatts Group Limited |
MEDIUM NEUTRAL CITATION: | [2017] VSC 552 |
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CORPORATIONS – Scheme of Arrangement – Merger of companies – Role of the Court – Competition condition – Exclusivity Clauses – Reimbursement clauses – s 411 Corporations Act 2001 (Cth)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P. W. Collinson QC with Ms E. Tadros of Counsel | Clayton Utz |
| For Tabcorp | Mr A. C. Archibald QC with Mr B. W. K. Holmes of Counsel | Herbert Smith Freehills |
HIS HONOUR:
A Introduction
By originating process filed on 7 July 2017, the plaintiff, Tatts Group Limited (Tatts), applies for orders under section 411(1) of the Corporations Act 2001 (Cth) (Act) for a meeting of its members (Tatts Shareholders) to be convened to consider a proposed scheme of arrangement (Scheme), and for associated orders and directions.[1]
[1]In this Judgment I have made extensive use of much of the outline of submissions filed by Tatts, for which I am grateful. I have for convenience and future purposes retained references to the evidence where appropriate.
B The Scheme
The Scheme provides for the combination of Tatts and Tabcorp Holdings Limited (Tabcorp) by way of transfer of all of the shares in Tatts (Tatts Shares) to Tabcorp. It is provided for by a merger implementation deed (MID),[2] and Tatts shareholders will be provided with information regarding the Scheme by a scheme booklet (Scheme Booklet).
[2]Exhibit AET-4 to the first affidavit of Anne Elizabeth Tucker sworn on 7 July 2017 (First Tucker Affidavit). Attachment 1 to the MID is a scheme of arrangement (MID Scheme) between Tatts and its shareholders. By letter dated 3 August 2017, Tatts and Tabcorp agreed that the MID Scheme had been superseded and replaced by the revised Scheme (Scheme) attached to that letter: see tab 32 of exhibit AET-5 to the second affidavit of Anne Elizabeth Tucker sworn 6 September 2017 (Second Tucker Affidavit).
If the Scheme is to proceed, all conditions precedent (other than court approval) will be either satisfied or waived by the date on which the application for approval comes before the Court.[3]
[3]Scheme, clause 2.1(a).
If the Scheme is approved by the Tatts Shareholders and ultimately by the Court, it becomes effective on the lodging of an office copy of the Court’s order with the Australian Securities and Investments Commission (ASIC), which is currently expected to occur on 24 October 2017 (Effective Date).[4]
[4]Scheme, clause 3.1 and the definition of Effective Date in clause 1.1. See also s 411(10) of the Act and r 3.5 of the Rules.
The Scheme is Annexure C to the Scheme Booklet. The mechanism for the Scheme (if implemented) is as follows:
(a) Tatts will apply to the Australian Securities Exchange (ASX) for suspension of trading of Tatts Shares with effect from the close of business on the day the Scheme becomes effective, which is expected to be 24 October 2017;
(b) Tabcorp will provide the following consideration to each Scheme Shareholder,[5] in respect of each Tatts Share (Scheme Consideration):
[5]Which means a Tatts Shareholder as at the Record Date (Scheme, clause 1.1).
(i) $0.425 cash (less any cash dividend of up to $0.25 per Tatts Share which Tatts may declare if the Scheme becomes effective, “Tatts Special Dividend”) (Cash Consideration); and
(ii) an allotment of 0.80 of a fully paid ordinary share in Tabcorp (Scrip Consideration);
(c) by no later than the Business Day before the Implementation Date (the Implementation Date is currently expected to be 1 November 2017),[6] Tabcorp must deposit the Cash Consideration into a trust account nominated by Tatts, which must then pay or procure the payment to each Scheme Shareholder on the Implementation Date;
[6]The Implementation Date is defined to be the third Business Day after the Record Date or such other date after the Record Date as the parties agree in writing. The Record Date means 5.00 pm on the third Business Day after the Effective Date or such other date time and date as the parties agree in writing. See Scheme, clause 1.1.
(d) on the Implementation Date, Tabcorp must issue to each Scheme Shareholder (or their nominee appointed by Tabcorp if they are an Ineligible Foreign Shareholder[7] or a Breaching Shareholder[8] to the extent that issue of such shares would give rise to a breach of law or Tabcorp’s constitution) such number of New Tabcorp Shares as that shareholder is entitled to as Scheme Consideration, procure entry of their name and address in the Tabcorp share register and provide them with uncertificated holding statements for the New Tabcorp Shares;
[7]An Ineligible Foreign Shareholder means a Scheme Shareholder whose address shown in the Tatts Share Register on the Record Date is a place outside Australia and its external territories or New Zealand, unless Tabcorp (acting reasonably, and after consultation with Tatts) determines that it is lawful and not unduly onerous or impracticable to issue that Scheme Shareholder with New Tabcorp Shares when the Scheme becomes Effective (Scheme, clause 1.1). The treatment of Ineligible Foreign Shareholders for the purposes of receiving the Scrip Consideration is dealt with in paragraphs 44 to 50 of the Second Tucker Affidavit. In summary, the New Tabcorp Shares they would have received if they were not Ineligible Foreign Shareholders will be sold by a nominee appointed by Tatts and the net proceeds remitted to them.
[8]Breaching Shareholder is a Scheme Shareholder, to whom the issue of New Tabcorp Shares would result in a breach of law or of a provision of the constitution of Tabcorp (Scheme, clause 1.1). The treatment of Breaching Shareholders for the purposes of receiving the Scrip Consideration is dealt with in paragraphs 51 to 59 of the Second Tucker Affidavit. In summary, any New Tabcorp Shares to which a Scheme Shareholder is entitled, the transfer of which would result in a breach of law or of Tabcorp’s constitution, will be sold by a nominee appointed by Tatts and the net proceeds remitted to them.
(e) on the Implementation Date, subject to provision of the Scheme Consideration, all of the Scheme Shares (Tatts Shares held by the Scheme Shareholders as at the Record Date), together with all rights and entitlements attaching to them at that date, will be transferred to Tabcorp without the need for any further act by any Scheme Shareholder (other than those performed by Tatts or its directors as attorney or agent for Scheme Shareholders under the Scheme) by Tatts effecting a valid transfer or transfers of the Tatts Shares to Tabcorp under s 1047D of the Act (or by alternative procedures if that one is not available);[9]
[9]Scheme, clause 4.2(a).
(f) Tatts will:
(i) become a wholly owned subsidiary of Tabcorp; and
(ii) apply to the ASX for termination of official quotation of Tatts Shares on the ASX and to have itself removed from the official list of the ASX with effect from the Business Day immediately following implementation of the Scheme.
In addition, the MID acknowledges that Tatts may pay a fully franked dividend not exceeding:
(a) 9.5 cents per Tatts Share after 31 December 2016 and before 1 July 2017 (clause 6.2(a) of the MID), which was paid on 3 April 2017; and
(b) 8 cents per Tatts Share after 1 July 2017 and before 31 December 2017 prior to the Implementation Date (clause 6.2(b) of the MID),
being “Permitted Ordinary Course Dividends”.
The Permitted Ordinary Courses Dividends do not form part of the Scheme Consideration and their payment will not be part of the Scheme.[10]
[10]Second Tucker Affidavit, 40.
Tabcorp’s obligations in respect of the Scheme are secured by its entry into a Deed Poll, an executed copy of which has been exhibited to the affidavit of Sean Hughes.
The Deed Poll is in the usual form. It binds Tabcorp in favour of the Scheme Shareholders, subject to and in accordance with the provisions of the Scheme to:
(a) pay the aggregate amount of the Cash Consideration payable to all Scheme Shareholders under the Scheme into a trust account operated by Tatts;[11]
(b) issue to each Scheme Shareholder 0.80 of a fully paid ordinary share in Tabcorp for every Tatts Share held by that shareholder;[12] and
(c) undertake all other actions and obligations attributed to it under the Scheme.[13]
[11]Deed Poll, clause 3.1(a). See also the Scheme, clause 4.3(a). As noted in paragraph 5(b), the Cash Consideration will be reduced by the cash amount of any Tatts Special Dividend paid.
[12]Deed Poll, clause 3.1(b). No reason was advised and no obstacle or impediment identified as to why this should not take place in the manner suggested.
[13]Deed Poll, clause 3.1(c).
C Evidence
Tatts relied upon the following affidavits in support of the application:
(a) affidavit of Anne Elizabeth Tucker, General Counsel & Company Secretary of Tatts, sworn on 7 July 2017 and the attached exhibits (First Tucker Affidavit);
(b) affidavit of Ms Tucker sworn on 6 September 2017 and the attached exhibits (Second Tucker Affidavit);
(c) affidavit of Ms Tucker which is expected to be sworn on 7 September 2017 and will exhibit the final version of the Scheme Booklet (Third Tucker Affidavit);
(d) affidavit of Frederick Michael Prickett, partner at Clayton Utz, sworn on 6 September 2017 and the attached exhibits (Prickett Affidavit);
(e) affidavit of Caleena Gai Stilwell, a chartered accountant and director of Grant Samuel & Associates Pty Limited (Grant Samuel), the person responsible for the preparation of the independent expert’s report (Grant Samuel Report) and the attached exhibits (Stilwell Affidavit). The Stilwell Affidavit was sworn on 6 September 2017;
(f) affidavit of Paul William Lindstrom, authorised representative of PricewaterhouseCoopers Securities Ltd and the attached exhibits, sworn on 6 September 2017 (Lindstrom Affidavit); and
(g) affidavit of Sean Hughes of Tabcorp and the attached exhibits, expected to be sworn or affirmed on 7 September 2017 (Tabcorp Affidavit).
D The Scheme is fit for consideration
It was submitted that the Court should make the proposed orders as the procedural and substantive requirements for the calling and conduct of the proposed meeting were met.[14] It was submitted that the Court should be satisfied that:
[14]Reference was made to the following cases: Re Orica Limited [2010] VSC 231 at [7] and in Re Healthscope Ltd [2010] VSC 367 at [8]-[9]; cited with approval in Re Mitchell Communication Group [2010] VSC 423 at [8]; Re Plantic Technologies Ltd [2010] VSC 484 at [4]; in Re AWB Ltd [2010] VSC 456 at [8]-[10]; Re Foster’s Group Limited [2011] VSC 93 at [9]; Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [10]-[14]; Re Cellestis Ltd [2011] VSC 284 at [2]; Re Strategic Energy Resources Ltd [2011] VSC 645 at [6]-[8]; see also Re Straits Resources Ltd [2010] FCA 1466; Re The MAC Services Group Ltd [2010] NSWSC 1316; Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1104; Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [24].
(a) its jurisdiction to make the Orders is enlivened under s 411 of the Act;
(b) the application complies with the relevant rules of the Supreme Court (Corporations) Rules 2013 (Vic) (Rules);
(c) the Scheme is one which is fit for consideration by the proposed meeting;[15] and
(d) Tatts Shareholders will be properly informed of the nature of the Scheme before the Scheme Meeting.[16]
[15]Re Bank of Adelaide (1979) 22 SASR 481 at 494–5 (Wells J); Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [22].
[16]Re NRMA Ltd (2000) 33 ACSR 595 at [30]; see also Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [38]; Re Elders Forestry Management Ltd (2012) 90 ACSR 573 at [75]; Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [22].
The question for the Court at this stage of the process 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.”[17] However, it is not the Court’s role to consider the commercial efficacy of the proposed scheme or to express a view on whether the proposed scheme should be approved.[18]
[17]Re Sonodyne International Ltd (1994) 15 ACSR 494 at 497 (per Hayne J); applying FT Eastment & Sons v Metal Roof Decking Supplies (1977) 3 ACLR 69 at 72 per Street CJ; ASC v Marlborough Gold Mines Ltd (1993) 177 CLR 485 per the Court at 501. See also Re Coles Group Ltd [2007] VSC 389; Re Toll Holdings Limited [2015] VSC 123 at [16] and Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [23].
[18]Re Orica Limited [2010] VSC 231 [8] (per Davies J); See also Re ACM Gold Ltd (1992) 34 FCR 530 at 534 per O’Loughlin J, citing with approval Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385 at 409 per Lindley LJ; see also Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [28].
Ordinarily, the Court will not order the convening of a meeting “unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the ... meeting the court would be likely to approve it on the hearing of a petition which is unopposed.”[19]
[19]Re Cytopia [2009] VSC 560 at [3] and the authorities there cited; see also Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [11] and Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [26].
I am satisfied that the Court’s jurisdiction to make orders and directions under s 411(1) of the Act is enlivened for the following reasons:
(a) Tatts, which is a Part 5.1 body, proposed the Scheme between itself and its members;[20]
[20]Subsection 411(1); Tatts is a Part 5.1 body as defined in s 9 of the Act as it is a company registered under the Act and proposed the Scheme pursuant to clause 2 of the MID: see First Tucker Affidavit: exhibit AET-1 and AET-4. A scheme for the acquisition by one company of the shares in another is an “arrangement” within the meaning of s 411: Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [39] per French J. Recent examples in this Court are Re Cellestis Ltd (No 2) [2011] VSC 329; Re Fosters Group Ltd [2011] VSC 93; Re AXA Asia Pacific Holdings Ltd [2011] VSC 4.
(b) Tatts is making this application for the order in a summary way;[21]
[21]Subsection 411(1).
(c) ASIC has been provided with more than 14 days’ notice of the hearing of the application as it was:
(iii) served with the originating process and the First Tucker Affidavit on 7 July 2017; and
(iv)advised of the return date (8 September 2017) for the application on 17 August 2017;[22]
[22]Subsection 411(2)(a): Prickett Affidavit, paragraphs [8]-[10].
(d) ASIC has had a reasonable opportunity:
(i) to examine the terms of the Scheme as it was provided with draft versions of the Scheme Booklet (which incorporates the explanatory statement and contains the terms of the Scheme) on 30 June 2017, 17 August 2017 and 31 August 2017; and
(ii) to make submissions to the Court in relation to the Scheme and the Scheme Booklet.[23]
[23]Subsection 411(2)(b); Prickett Affidavit, paragraphs [5]-[7]. By letter dated 7 September 2017 addressed to the Directors of Tatts, ASIC indicated that the requirements referred to have been satisfied and that it did not propose to appear at the first hearing, reserving the right to appear and make submissions at the second hearing (the ASIC Letter).
Further, I am satisfied with the following matters –
(a) the terms of the proposed scheme are in a conventional form and meet the particular requirements established by the authorities for current merger scheme practice;
(b) there is no reason why the Scheme, if considered and adopted by the members, is of such a nature that it would be unlikely to be approved by the Court at the second hearing;
(c) Tatts shareholders are to be presented (Annexure A to the Scheme Booklet) with a careful analysis by Grant Samuel of the transaction and its advantages and disadvantages. In the Grant Samuel Report, Grant Samuel conclude that Tatts shareholders are contributing approximately 53-55% of the value but are receiving a 58.4% share of the combination of Tatts and Tabcorp while existing Tabcorp shareholders will hold the remaining 41.6%. On the basis of this valuation and the overall analysis of set out in their report, Grant Samuel conclude that the acquisition of Tatts shares by Tabcorp for the total scheme consideration under the Scheme is fair and reasonable and in the best interests of Tatts shareholders, in the absence of a superior proposal.[24] The directors of Tatts agree with this analysis;
[24]See page 2 of the letter from Grant Samuel to the Directors of Tatts accompanying the Grant Samuel Report.
(d) the Scheme has been unanimously recommended by the directors of Tatts, in the absence of a Superior Proposal[25] and the directors propose to vote their Tatts shares in favour of the Scheme;
[25]Re NRMA Ltd (2000) 33 ACSR 595 at [30]; see also Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [38]; Re Elders Forestry Management Ltd (2012) 90 ACSR 573 at [75]; Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [22].
(e) the Scheme Booklet provides a detailed description of the Scheme and its advantages and disadvantages, appears to meet all of the statutory requirements and has been carefully prepared and verified by Tatts and Tabcorp;
(f) As required by r 2.4(2) of the Rules, the First Tucker Affidavit exhibits the results of a search of the records maintained by ASIC in relation to Tatts on 4 July 2017 (within 7 days of beginning the proceeding, which was 7 July 2017);[26]
[26]First Tucker Affidavit: exhibit AET1.
(g) As required by r 3.2 of the Rules, the matters regarding nomination of the chairperson are to be found in the Second Tucker Affidavit at paragraphs [114 to 119];
(h) The proposed Orders:
(iii) identify the Scheme as required by r 3.3(1) of the Rules by annexing the Scheme Booklet containing the terms of the Scheme as an Annexure to the draft Orders; and
(iv)provide for the matters required by r 3.3(4) of the Rules, except that reference to the approval of the Scheme Booklet by the Court has been omitted.
It is also relevant that the proposed Scheme Booklet contains an investigating accountant’s report which states that nothing has come to its attention to cause it to believe that the Combined Group Pro Forma Financial information included in section 12.5 of the Scheme Booklet is not presented fairly.[27]
[27]See Lindstrom Affidavit.
However, there are a number of matters that require further consideration –
(a) the proposed timing of the Scheme Meeting and the outstanding competition condition;
(b) the reimbursement of costs (“break fee”);
(c) the exclusivity period; and
(d) the purpose of the scheme (i.e., not to avoid Chapter 6 of the Act).
For the reasons set out below, none of these matters provide a sufficient reason for the Court to refrain from making an order convening a meeting of shareholders of Tatts to consider and vote upon the Scheme.
EProposed timing of the Scheme Meeting and the outstanding competition condition
The decision by the Australian Competition Tribunal (Tribunal) on 22 June 2017 to grant authorisation to Tabcorp pursuant to ss 95AT and 95AZJ of the Competition and Consumer Act 2010 (Cth) (Competition Act) to acquire shares in Tatts as set out in the MID[28] is the subject of judicial review applications by the Australian Competition and Consumer Commission (ACCC) and CrownBet Pty Ltd (CrownBet).[29] The applications were heard before the Full Court of the Federal Court on 28 and 29 August 2017.[30] Judgment is expected shortly.
[28]Application by Tabcorp Holdings Limited [2017] ACompT 1. See tab 37 of exhibit AET-5.
[29]Second Tucker Affidavit, [69] to [71]. See tabs 38 and 39 of Exhibit AET-5 for a copy of the applications.
[30]Second Tucker Affidavit, [77]. See tab 40 of Exhibit AET-5 for a copy of the orders.
There are a number of possible outcomes following the judicial review applications:
(a) The condition precedent in clause 3.1(a)(1) of the MID (competition condition) is waived[31] before the proposed Scheme Meeting on 18 October 2017 because the Full Court has handed down a decision dismissing the ACCC’s and CrownBet’s applications:
[31]By operation of paragraph 1 of the letter dated 3 August 2017 at tab 32 of exhibit AET-5 to the Second Tucker Affidavit. See also the relevant ASX announcement at tab 29 of exhibit AET-5 to the Second Tucker Affidavit.
(v) prior to 19 September 2017 (which is 28 days before 18 October 2017), and the ACCC and CrownBet have not made any special leave application to the High Court within the prescribed 28 days; or
(vi)after 19 September 2017 but prior to the Scheme Meeting, and the ACCC and CrownBet confirm prior to the Scheme Meeting that they will not make an application for special leave.
(b) The competition condition is not able to be satisfied before the proposed Scheme Meeting on 18 October 2017 because:
(i) the Full Court has not by that time handed down a decision; or
(ii) after 19 September 2017 but prior to the Scheme Meeting, the Full Court has dismissed the ACCC’s and CrownBet’s applications, but by the time of the Scheme Meeting:
A. the prescribed 28 days for making a special leave applications has not expired and the ACCC and CrownBet have not ruled out such an application; or
B. either or both of the ACCC or CrownBet have made a special leave application.
(c) The competition condition is not able to be satisfied before the proposed Scheme Meeting on 18 October 2017 because the Full Court allows one or both of the judicial review applications and the matter is remitted to the Tribunal prior to the proposed Scheme Meeting.
In either of the scenarios referred to in sub-paragraph (a) above, where the competition condition is waived before the proposed Scheme Meeting on 18 October 2017, it is expected that Tatts will issue a brief supplementary disclosure advising Tatts Shareholders about the Full Court’s decision and that the competition condition has been satisfied, and Tatts will proceed with the Scheme Meeting as scheduled on 18 October 2017.
In either of the two scenarios referred to in sub-paragraphs (b) and (c) above, where the competition condition is not satisfied before the proposed Scheme Meeting on 18 October 2017:
(a) Tatts submitted that it may apply to the Court for orders to adjourn the Scheme Meeting to a later date, alternatively the chairperson of the Scheme Meeting may consider exercising his discretion to adjourn the meeting to a later date; and/or
(b) Tatts and Tabcorp may discuss in good faith the possibility of waiving the condition precedent.
In either of these events, Tatts will, it was submitted, make the necessary supplementary disclosures to Tatts Shareholders as required.
The uncertainty at this point surrounding the outcome of the judicial review applications and as a consequence the competition condition does not mean that, following approval by shareholders, it is unlikely that the scheme will be approved. As pointed out there are several possibilities. For the reasons set out below, I do not consider that these possible outcomes ought cause the Court to refrain from making the orders sought because they do not “make it unlikely the Scheme would be capable of a grant of approval by the Court” such that it would be “futile” to put the Scheme to the Tatts Shareholders for their vote.[32] The Court was told that Tatts expects that the Full Court will make a decision prior to the proposed Scheme Meeting on 18 October 2017, and possibly prior to 19 September 2017, for the following reasons:
[32]Re Orica Limited [2010] VSC 231 [7](d) (per Davies J). Indeed, in written submissions made after the hearing of the application both Tatts and Tabcorp submitted that the consequences and effect of a waiver of the competition condition in situations (b) and (c) would be an appropriate matterfor consideration at the second hearing.
(a) Besanko J indicated to the parties at the hearing on 29 August 2017 that the Full Court will attempt to deliver its reasons in a timely fashion after Senior Counsel for Tabcorp informed the Full Court of the proposed timing of the Scheme, particularly that the proposed Scheme Meeting would need to be adjourned if the competition condition precedent issue was still outstanding by 10 or 11 October 2017.[33]
(b) The matters under review are relatively confined, straightforward questions of law which should not require excessive consideration by the Full Court - importantly, the Full Court will not be re-determining any findings of fact.[34]
(c) The Full Court has a track record of dealing expeditiously with matters which relate to significant current transactions.[35]
[33]See relevant extracts of the transcript at Tab 47 of Exhibit AET-5 to the Second Tucker Affidavit.
[34]See the applications by the parties at tabs 38 and 39 of Exhibit AET-5 to the Second Tucker Affidavit. Further, the review applications relate to a decision of the Tribunal, which is under a strict statutory timeframe to hand down its decision within 3 months, unless extended due to complexity or special circumstances: Competition Act, s 95AZI.
[35]For example, in ACCC v Metcash [2011] FCFCA 151, the Full Court took 5 weeks to consider a substantial appeal which involved multiple questions of fact and law relating to an alleged breach of s 50 of the Competition Act.
It was submitted that the proposed scheme timetable provides at least as much (if not greater) certainty on the timing and prospects of satisfying the competition condition when compared to many other merger schemes in which courts have ordered the despatch of scheme booklets and the convening of scheme meetings, despite outstanding regulatory approvals. Various market examples were referred to.
It was submitted that none of the courts in these examples showed any reluctance or even discussed whether there were issues with making orders convening the scheme meeting in the face of uncertainty as to when and if the approvals would be granted. This is despite the mergers being subject to foreign investment approvals which were political or discretionary in nature.
In circumstances where Tabcorp has already obtained authorisation from the Tribunal pursuant to s95AT of the Competition Act, the likelihood of a timely decision from the Full Court, the possible outcomes listed in paragraph 22 above, including possible satisfaction or waiver of the competition condition and the comparable market examples, it cannot be said that the Scheme is so unlikely to be capable of a grant of approval by the Court that it ought refuse making the orders sought.
Further, the proposed scheme timetable would enable Tatts and Tabcorp to continue progressing the implementation of the transaction in accordance with their obligations under the MID and avoid any unnecessary delay in circumstances where a decision by the Full Court is handed down as promptly as expected.
In all of the circumstances and although not free from difficulty I am of the opinion that the better view is that the Court should at this stage approve and authorise the convening of the Scheme Meeting substantially for the reasons submitted. It is noteworthy and of significance that there is no opposition to such a course.[36] The exclusivity period (see section G below) has been extremely lengthy and the current position is that the merger has obtained authorisation from the Tribunal (though subject to remittal to the Tribunal pending the outcome of the appeal). The costs have been incurred, most of the work completed, and unless and until there is an obstacle the proposed meeting should proceed.
[36]See ASIC Letter (fn 23) and email from ACCC dated 5 September indicating that it did not intend to appear at the first court hearing (Tab 46 to Exhibit AET5 to Second Tucker Affidavit).
F Reimbursement of costs
The terms of the Tatts Reimbursement Fee, Tabcorp Reimbursement Fee and Competition Approval Reimbursement (Reimbursement Fees) are summarised at ss 14.2(h), 14.2(i) and 14.2(j) respectively of the Scheme Booklet and at paragraphs 85 to 93 of the Second Tucker Affidavit.
The Tatts Reimbursement Fee represents approximately 1.04% of the total equity value of Tatts having regard to the value of the bid consideration when the proposed transaction was announced: see paragraph 86 of the Second Tucker Affidavit.
The Reimbursement Fees are not payable if the Scheme becomes effective (clause 14.9 of the MID) or to the extent that the obligation to do so is declared by the Takeovers Panel to constitute “unacceptable circumstances” or is determined to be unenforceable or unlawful by a court (clause 14.6(a) of the MID).
In considering whether lock-up devices (including break fees) give rise to unacceptable circumstances, the Takeovers Panel has regard to the likely effect of the device on: (i) competition involving current or potential bidders, and whether it is significant; and (ii) whether shareholders may be substantially coerced into accepting the bid (by reason of the diminution in the value of their company if they do not).[37] Referring to break fees in particular, the Takeovers Panel states that, in the absence of other factors, it regards a break fee not exceeding 1% of the equity value of the target company as generally not being unacceptable.[38]
[37]Takeovers Panel Guidance Note 7: Lock Up Devices, Issue 4, 11 February 2010 at [7].
[38]Ibid at [9].
It was submitted that courts are generally only inclined to refrain from ordering a meeting of shareholders to consider and vote upon a scheme if a break fee was such that it could influence voting at the meeting or deter companies from mounting a competing offer.[39] Further, courts have not generally regarded the fact that a break fee exceeds the 1% guideline as a reason to refuse an order for meetings.[40]
[39]Re Toll Holdings Limited [2015] VSC 123 at [27]-[29]; Re SFE Corporation Ltd (2006) 59 ACSR 82 (Giles J); Re APN News & Media Limited (2007) 62 ACSR 400 at [37]–[55]. See also Re Skilled Group Ltd (No 1) [2015] VSC 789 per Robson J at [42].
[40]See Damian & Rich, Schemes, Takeovers and Himalayan Peaks (3rd ed., 2013) at pp 354-357. For example, Davies J ordered a meeting where the fee of $500,000 was approximately 4.57% of the equity value of the target: Re Cytopia Ltd [2009] VSC 560 at [12]–[18]; cited with approval in Re Toll Holdings Limited [2015] VSC 123 at [30].
In my opinion and in the circumstances and substantially for the reasons submitted, the Tatts Reimbursement Fee does not represent a barrier to the convening of the Scheme Meeting despite it slightly exceeding 1% of the total equity value of Tatts for the following reasons:
(a) it is not payable simply because Tatts shareholders reject the Scheme.[41] This ought be a decisive factor at the first court hearing as it cannot influence voting unless circumstances arise before the meeting which may trigger Tatts’s obligation to pay the Tabcorp Reimbursement Fee if the Scheme is not approved;[42]
[41]Second Tucker Affidavit, paragraph 87. This was the case in Re Toll and Re Skilled at [32] and [44] respectively.
[42]If such circumstances arise, the Court can assess any possible influence of the fee on voting at the second court hearing in the light of the actual facts.
(b) it is otherwise consistent with the Takeovers Panel guidelines, in relation to reasonable triggers for the payment of the fee (such as a change of directors’ recommendation, a competing transaction that successfully competes or a material breach within the target’s control (see clauses 14.2 of the MID);[43]
[43]Guidance Note 7 at [9].
(c) the estimated transaction costs for Tabcorp incurred post 30 June 2017 is $96 million before tax (see Figure 20 on page 98 of the Scheme Booklet) which far exceeds the $55 million Tatts Reimbursement fee;
(d) the obligation to pay and the amount of the payment of the Reimbursement Fees were the result of ordinary commercial negotiation between Tatts and Tabcorp in which they were both assisted by external legal advisers: see paragraph 92 of the Second Tucker Affidavit; and
(e) in agreeing to the fee, Tatts formed the view that the Reimbursement Fees do not operate against the interests of the Tatts Shareholders and in fact they are in the interests of Tatts Shareholders as they were necessary to secure the entry of Tabcorp into the MID (and thereby secure the benefits of the proposed transaction for Tatts Shareholders): see paragraph 92 of the Second Tucker Affidavit.[44]
[44]It therefore meets all the same standards considered in Re Cytopia Ltd [2009] VSC 560 at [12]–[18].
GExclusivity arrangements
The exclusivity arrangements are set out in clause 13 of the MID and include “no talk” and “no due diligence” provisions, “no shop” provisions, a “notification of approaches” obligation on Tatts and a “matching right” for Tabcorp. Summaries of these provisions are set out in paragraphs 79 to 84 of the Second Tucker Affidavit. Such provisions are ordinarily found in merger implementation agreements.[45]
[45]See Re Toll and Re Skilled per Robson J at [36] and [50] respectively.
These arrangements last for the “Exclusivity Period”, which is defined as the period 18 October 2016 to the earliest of the termination of the MID, the End Date (now, 31 December 2017) and the Effective Date (which is expected to be 24 October 2017). The means the Exclusivity Period will be approximately 14 months (if it lasts until 31 December 2017, being the End Date) unless the MID is terminated before then.
It was submitted that the exclusivity arrangements ought not prevent the Court from making an order to convene a meeting of members to vote on the Scheme because:[46]
[46]See the criteria set out in Re Arthur Yates & Co Ltd (2001) 36 ACSR 758 at [9] (per Santow J) cited with approval in Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [28], Re Toll Holdings Limited [2015] VSC 123 at [38] and Re Skilled Group Limited (No 1) (2015) 113 ACSR 525 at [54].
(a) while the length of the Exclusivity Period is longer than the usual range of reasonable periods for acquisition schemes,[47] it is appropriate in the context of this Scheme;
(b) there are appropriate fiduciary carve-outs; and
(c) the exclusivity provisions have been given adequate prominence in the Scheme Booklet.[48]
[47]See, e.g., Re Dyno Nobel Ltd [2008] VSC 154 (9 months); Re Hostworks Group Ltd (2008) 26 ACLC 137 (6 months); Re Sino Gold Ltd [2009] FCA 1277 (7 months).
[48]The exclusivity arrangements are summarised at page 123 of the Scheme Booklet (clause 14.2(c), (d) and (e)).
When determining whether an exclusivity period is reasonable, courts have, it was submitted, taken into account:
(a) the complexities of the transaction and potential delay in obtaining regulatory approvals, particularly where there are lengthy review periods associated with obtaining such approvals;[49]
[49]ReLudowici Ltd [2012] FCA 489, [8] (per Emmett J). The exclusivity period for this scheme was 10 months.
(b) the period required to actually effect the scheme proposal;[50]
(c) the operation of the break-fee provisions with respect to the exclusivity period;[51] and
(d) the level of control the bidder has over the target’s actions by operation of the break-fee provisions.[52]
[50]Re Triausmin Ltd [2014] FCA 611 [28] (per Farrell J). The proposed Scheme meeting was scheduled to be 4 months after the implementation agreement, but the exclusivity period was said to last until the earlier of the termination of the agreement, implementation of the scheme and a date five months after the proposed meeting date.
[51]Ibid. A break fee was payable by the target if certain conditions were met approximately eight months after the proposed meeting date, effectively extending the exclusivity period to 12 months.
[52]Ibid. The scheme implementation agreement contained a number of provisions more akin to a private sale agreement and entitled the bidder to terminate and receive the break fee if, for example, the target incurred any capital expenditure exceeding $200,000 in aggregate or the shareholders passed a special resolution.
Having regard to the following matters, I consider that the exclusivity period for this Scheme is reasonable for the following reasons:
(a) the significant and numerous complexities and potential delays with respect to obtaining the regulatory approvals required for implementation of the Scheme;
(b) the Exclusivity Period only operates for two months after the expected effective date;
(c) the significant transaction costs associated with the Scheme (see Figure 20 on page 98 of the Scheme Booklet), the parties would not have entered into the MID and obtained the benefits of the Scheme for shareholders, without the lengthy exclusivity period (see Second Tucker Affidavit at paragraph 84); and
(d) The absence of break-out provisions which extend the exclusivity period or act to control Tatts’s actions in the MID.
While the “no talk” and “no due diligence” are subject to a fiduciary carve-out, the “no shop” provisions and “notification of approaches” clauses are not.
The consistent approach of courts since 2001 has been to only require a fiduciary carve out in relation to “no talk” provisions.[53]
[53]See Re Healthscope Limited [2010] VSC 367 per Davies J at [19]-[22] and the cases collected by her Honour at footnote 12 of that decision; Re Toll Holdings Limited [2015] VSC 123 per Robson J at [39], cited with approval in Re Skilled Group Limited (No 1) (2015) 113 ACSR 525 at [55].
I am satisfied for the reasons submitted that the “no shop” provisions and “notification of approaches” are not inappropriate or at risk of being considered anti-competitive for the following reasons:[54]
[54]Re Healthscope Limited [2010] VSC 367 [22] (Davies J). Also see Takeovers Panel Guidance Note 7, [21].
(a) the “matching right” clearly permits Tatts to respond to a Competing Proposal;
(b) the “notification of approaches” clause only requires the identity of the person making the Competing Proposal and its terms and conditions, not all details of the negotiations;
(c) as this transaction is a merger rather than a takeover, Tabcorp is similarly under exclusivity obligations (it is not entitled to terminate the MID on receipt of a Competing Proposal: clause 13.5; no shop: clause 13.6; and notification of approaches: clause 13.7);
(d) the Tatts board has concluded that these provisions were necessary to secure the benefit of the Tabcorp proposal, the overall terms and condition of which, the board believed, would deliver significant benefits to Tatts shareholder and did not operate against the interests of Tatts shareholders;[55] and
(e) as a matter of practicality, it is clear that these provisions have not had an anti-competitive effect as Tatts has received two Competing Proposals since execution of the MID.[56]
[55]Second Tucker Affidavit, [84].
[56]See the Second Tucker Affidavit at [25] (proposal received from four financial investors (Pacific Consortium) on 14 December 2016) and [35] (revised proposal received from the Pacific Consortium on 19 April 2017).
HPurpose of the Scheme is not to avoid Chapter 6 of the Act
Pursuant to s 411(17) of the Act, the Court must not approve the Scheme unless:
(a) it is satisfied that it has not been proposed for the purpose of avoiding Chapter 6 of the Act; or
(b) a written statement is provided to the Court by ASIC that it has no objection to the arrangement.[57]
[57]See Re Coles Group Ltd (No 2) (2007) 65 ACSR 494 at [16]-[24], cited with approval in Re Toll Holdings Limited [2015] VSC 123 at [43] and Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [94].
As set out in paragraphs 120-121 of the Second Tucker affidavit, the evidence from Tatts is that the transaction has not been structured as a Scheme for the purpose of avoiding any provision of Chapter 6 of the Act.
In relation to a statement provided from ASIC, it will generally not be provided until the second court hearing.[58] Section 411(17) does not present a bar to a meeting being convened if it seems likely that ASIC will produce the relevant statement at the second court hearing.[59]
[58]See ASIC RG60 at [106].
[59]Re Lonsdale Financial Group Ltd [2007] VSC 394 at [31]–[40] (Robson J), cited with approval in Re Toll Holdings Limited [2015] VSC 123 at [43] and Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [94].
Paragraph 104 of the ASIC RG60 states the circumstances under which ASIC will provide a statement under s 411(17)(b).
All material information relating to the Scheme has been disclosed to ASIC.[60] The document under tab 1 at Exhibit FMP-1 to Mr Prickett’s affidavit is a table indicating that the standards of disclosure prescribed by the Corporations Regulations 2001 (Cth) (Regulations), Chapter 6 of the Act and ASIC RG60 have been complied with where applicable and are contained in the Scheme Booklet.
[60]Prickett Affidavit and Stilwell Affidavit.
There is presently no reason to expect that ASIC will not provide a notice under s 411(17)(b) at the second court hearing.
Tatts shareholders will be properly informed
It was submitted that Tatts has provided adequate information to Tatts Shareholders as reflected in s 412 of the Act and Schedule 8 of the Regulations to enable them to be properly informed to vote on the Scheme.[61]
[61]Section 412 of the Act and Schedule 8 to the Regulations provide guidance to the Court in assessing the adequacy of information, bearing in mind that this application is made in a summary way: See Re Foundation Healthcare Ltd, above, at [3]; Re Opes Prime Stockbroking Ltd (2009) 73 ACSR 385 at [94]–[99], cited with approval in Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [99].
In line with these provisions:
(a) Section 16 of the Scheme Booklet explains the effect of the Scheme, and states any material interest of the directors, and the effect on those interests of the Scheme so far as it is different from the effect on the like interests of other persons in section 16 (starting at page 140) of the Scheme Booklet.[62] This information makes clear that the effect of the Scheme on the directors’ interests is the same as the effect on the like interests of others;
(b) the Scheme Booklet sets out the prescribed information (as required by reg. 5.1.01 and Part 3 of Schedule 8 of the Regulations). The table under tab 1 at Exhibit FMP-1 to Mr Prickett’s affidavit shows where in the Scheme Booklet the prescribed information is located (except to the extent that Tatts has applied to ASIC for and obtained relief); and
(c) the Scheme Booklet is comprehensive and provides extensive discussion of the advantages, disadvantages and risks of the Scheme. It also sets out any other information within the knowledge of the directors that is material to the making of a decision whether or not to agree with the Scheme and has not previously been disclosed.[63] In addition, the independent expert’s report contains a detailed evaluation of the proposal, presented in a way that enables a shareholder to form his or her own view of the merits of the proposal. At paragraph 14 of her third affidavit, Ms Tucker deposes that the Scheme Booklet contains all information required to be disclosed to Tatts shareholders in connection with the Scheme.
[62]Act, s 412(1)(a)(i).
[63]Act, s 412(1)(a)(ii).
Ms Tucker describes the processes of the Due Diligence Committee established by the Board of Tatts to oversee preparation of the Scheme Booklet and supervise and assist in a process of verification of the information contained in it other than that provided by Tabcorp.
Ms Tucker has deposed (Third Tucker Affidavit) that she is satisfied that all necessary information has been included in the Scheme Booklet and that the information as presented is correct (or in the case of forward-looking statements, based on reasonable grounds) and is not misleading or deceptive.
The information supplied by Tabcorp and set out in section 11 of the Scheme Booklet has been verified by Tabcorp as set out in the affidavit of Sean Hughes, which sets out in detail the verification process undertaken by Tabcorp in relation to the information provided by Tabcorp. Finally, the MID contains a number of warranties by Tabcorp as to the accuracy and completeness of information provided by it for inclusion in the Scheme Booklet (see clause 9.1 and schedule 1 of the MID).
J Conclusion
The Court made the required orders and directions on Friday 8 September 2017. At the time I indicated that reasons would follow. These are the reasons.
In CSR Ltd [2010] FCFCA 34, the Full Court took 23 days (in a period that coincided with Easter) to decide an appeal against a decision to prevent a demerger scheme proceeding on the basis that there was uncertainty regarding the effect of the scheme on the company's ability to meet asbestos liabilities.
In Bacnet Pty Ltd v Lift Capital Partners Pty Ltd [2010] FCFCA 36, the Full Court took 26 days to decide an appeal relating to two creditors schemes of arrangement.
In Cemex Australia Pty Ltd v Takeovers Panel (2009) 177 FCR 98, the Full Court took 40 days to decide an appeal relating to a finding of unacceptable circumstances by the Takeovers Panel.
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