Savage Resources Ltd v Pasminco Investments Pty Ltd
[1998] FCA 1534
•2 DECEMBER 1998
FEDERAL COURT OF AUSTRALIA
CORPORATIONS LAW - whether Part A statement failed to comply with s 750 of Corporations Law - whether part A statement deficient or materially misleading - whether disclosure of sources of cash adequate - whether disclosure of intentions adequate
Corporations Law ss 697(1), 698(2), ss 731(d), s 750
Wright Heaton Limited v PDS Rural Products Pty Limited (1982) 2 NSWLR 301
Australian Consolidated Investments Limited v Rossington Holdings Pty Limited (1992) 35 FCR 226
ACI Consolidated Investments Limited v Rossington Holdings Pty Limited (1992) 7 ACSR 515
Associated Dairies Limited v Central Western Dairy Limited (1993) 44 FCR 335
Fraser v NRMA Holdings Limited (1995) 55 FCR 452
Pancontinental Mining Limited v Goldfields Limited (1995) 16 ACSR 463
Gantry Acquisition Corporation v Parker and Parsley Petroleum Australia Pty Limited (1994) 51 FCR 554
Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1005
Metal Manufacturers Limited v Marsh Electrical Pty Limited (Bryson J, Supreme Court of NSW, 14 October 1998, unreported)
Qiw Retailers Limited v Davids Holdings Pty Limited (1992) 36 FCR 386
Aberfoyle Limited v Western Metals Limited (1998) 156 ALR 68
Sagasco Amadeus Pty Limited v Magellan Petroleum Australia Limited (1998) 177 CLR 508
Primac Holdings v Iama Ltd & Ors (1996) 22 ACSR 454
Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (1998) 28 ACSR 1
SAVAGE RESOURCES LIMITED V PASMINCO INVESTMENTS PTY LIMITED & ORS
NG 3183 OF 1998
HELY J
SYDNEY
2 DECEMBER 1998
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 3183 of 1998
BETWEEN:
SAVAGE RESOURCES LIMITED
ACN 009 551 624
APPLICANTAND:
PASMINCO INVESTMENTS PTY LIMITED
ACN 082 291 674
FIRST RESPONDENTTYNDALL INVESTMENT MANAGEMENT (AUSTRALIA) LIMITED
ACN 002 060 228
SECOND RESPONDENTINTEGRATED EQUITY PTY LIMITED
ACN 059 686 289
THIRD RESPONDENTBT FUNDS MANAGEMENT LIMITED
ACN 002 916 458
FOURTH RESPONDENTJUDGE:
HELY J
DATE OF ORDER:
2 DECEMBER 1998
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
The application is dismissed with costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 3183 of 1998
BETWEEN:
SAVAGE RESOURCES LIMITED
ACN 009 551 624
APPLICANTAND:
PASMINCO INVESTMENTS PTY LIMITED
ACN 082 291 674
FIRST RESPONDENTTYNDALL INVESTMENT MANAGEMENT (AUSTRALIA) LIMITED
ACN 002 060 228
SECOND RESPONDENTINTEGRATED EQUITY PTY LIMITED
ACN 059 686 289
THIRD RESPONDENTBT FUNDS MANAGEMENT LIMITED
ACN 002 916 458
FOURTH RESPONDENT
JUDGE:
HELY J
DATE:
2 DECEMBER 1998
PLACE:
SYDNEY
REASONS FOR JUDGMENT
HELY J: Pasminco Investments Pty Limited ("Pasminco") is in the process of making a takeover bid for the ordinary shares in the capital of Savage Resources Limited ("Savage"). A document purporting to be a Part A statement, with an attached pro forma offer, was served upon Savage on 23 October 1998, having been registered with Australian Securities and Investment Commission on the previous day.
The Part A statement disclosed (clause 5) the shares in Savage to which Pasminco was entitled as at the date of the Part A statement. They included 75,030,588 shares acquired from the second, third and fourth respondents pursuant to separate agreements entered into between Pasminco and each respondent on 16 October 1998 (second respondent), 19 October 1998 (third respondent) and 20 October (fourth respondent). The effect of those acquisitions was to increase the percentage of the shares in Savage in which Pasminco held a relevant interest from something less than 5 percent, to approximately 16.96 percent.
The agreements by which the acquisition of these shares were affected took a common form. For ease of reference a copy of one such agreement is attached to these reasons. The paragraph numbering has been added, again for ease of reference (the "Sale Agreement").
It is Savage's contention that the entry into of these Sale Agreements involved Pasminco in a contravention of s 698(2) and s 697(1) of the Corporations Law.
Further, it is Savage's contention that the document purporting to be a Part A statement fails to comply with the requirements of Part A of s 750 of the Corporations Law in a number of respects. It is convenient to consider the challenges which Savage makes to the adequacy of the Part A statement, before dealing with its contention that there has been a contravention of ss 697 and 698 of the Law.
Sources of cash consideration – cl 11 and 17 of Part A of s 750
The Part A statement states (cl 9) that:
The consideration for the acquisition of the shares is to be satisfied wholly by payment in cash; that the maximum consideration payable would be $439M in one eventuality, or $480M in another, but unlikely, eventuality (cl 9.2).
Pasminco Finance Limited will lend the required funds to Pasminco Investments Holdings Pty Limited which will in turn lend the funds to Pasminco. Each of these companies is a company within the Pasminco group (cl 9.3).
Pasminco Finance Limited has available two sources of funds to finance the acquisition of shares by Pasminco under the offers:
- "existing cash reserves. No particular funds, or deposits have yet been earmarked for this purpose by Pasminco Finance Limited, and
- a facility to be provided by Credit Suisse First Boston (‘CSFB’) which is described in 9.5 below.
In aggregate, the funds available from these sources are sufficient to finance the acquisition of shares by Pasminco under the offers …" (cl 9.4)
Clause 9.5 sets out the details of the CSFB funding arrangement. It does not, however, specify the amount of the facility. Clause 9.6 then provides as follows:
"Although the facility is, subject to the conditions noted above, available to fund the acquisition of shares under the offers (and associated costs), following the announcement of the takeover bid, Pasminco Limited intends to approach some of its existing lenders to discuss drawing on existing facilities to fund the acquisition of shares as an alternative, or an addition to, the Facility. Accordingly, the acquisition of shares may be funded in whole or in part from drawings on these existing facilities. However, as at the date of this statement, no such approach to the existing lenders has been made and therefore Pasminco cannot state the terms on which those facilities might be made available."
It was a condition of CSFB's commitment to underwrite "the acquisition facility" that it received an undertaking in the form of Schedule 1 to the letter of 7 October 1998 sent by CSFB to Pasminco Limited. That undertaking was given by Pasminco Limited in terms of the letter of 7 October 1998. Relevantly it provides as follows:
"Pasminco agrees to use its best reasonable efforts to ensure that, except to the extent that Pasminco anticipates that Pasminco Finance Limited (PFL) will need to use cash or to draw down funds under the bilateral Facilities to meet the working capital and general operational requirements of the Pasminco group or to refinance amounts drawn under another Bilateral Facility, the acquisition of shares in Savage under the takeover bid is funded:
(a)first out of cash (as described in the Schedule) and from drawings under the Bilateral Facilities, subject to such drawings being previously approved by the counterparty to the relevant Bilateral Facilities; and
(b)only to the extent required, from drawings under the Acquisition Facility.
Pasminco will approach the counterparties providing the Bilateral Facilities after announcement of the takeover bid to seek their approval to use those facilities for the purpose outlined in paragraph (a) above.
The above obligations do not impose any obligations on Pasminco to draw funds under the Bilateral Facilities prior to Pasminco Investments' takeover bid becoming unconditional.
However, if Pasminco fails to fund the acquisition first from cash and drawings under the Bilateral Facilities or fails to approach the counterparties providing the Bilateral Facilities for their approval referred to above, such failure will not constitute a default, potential event of default or event of default under the Acquisition Facility and PFL will, despite such failure, be entitled to draw under the Acquisition Facility for the purpose of funding the acquisition subject to the terms of the Acquisition Facility. The foregoing does not limit or prejudice any claim for damages or any other remedy which CSFB may have against Pasminco as a result of such failure.
Pasminco agrees that it will ensure that the undrawn or available commitments under the Bilateral Facilities are not cancelled or terminated by PFL.
In this letter, Bilateral Facilities means PFL's existing bilateral credit facilities not expiring or intended to be cancelled by PFL, described in the schedule attached to this letter."
Alleged deficiencies in disclosure of sources of cash consideration
There is no challenge to the factual accuracy of the statement in cl 9.4 that, in aggregate, the funds available from existing (but not earmarked) cash reserves and from the CSFB facility are sufficient to finance the proposed acquisition. The complaint is of a failure to set out, or adequately set out:
the amount of the existing cash reserves available to Pasminco Finance Limited,
the amount of the CSFB facility,
the proportions in which the consideration will be drawn from cash reserves, and from borrowings'
particulars of the arrangements by which funds may be provided by the existing lenders'
in a context where the Part A statement does not assert that the facility agreed to be provided by CSFB is sufficient of itself to finance the proposed acquisition.
The requirements of cl 11
It is common ground that cl 11 (a) has no operation in the circumstances of the present case. The operative provision is cl 11(b), which requires that there be set out:
particulars sufficient to identify the other person who is, or each of the other persons who are, to provide, whether directly or indirectly, some or all of the cash from that person's or those persons' own funds; and
particulars of the arrangements by which that cash will be provided by that other person or those other persons.
It was also common ground that the object of this requirement is to ensure that the offeror gives sufficient information to shareholders in the target company to establish whether it is able to pay for the shares it is offering to buy. ASIC Practice Note No 37, paragraph 5, and the cases there cited.
Decision on cash consideration
In my opinion, there is no obligation to be found in cl 11(b) that the amount of the existing cash reserves of Pasminco Finance Limited be specified. There is no express obligation to be found in cl 11(b) to that effect. It was submitted that the obligation arises by analogy, as it were, from cl 11(a). It would be "passing strange" that where the offeror is to provide its own funds, it must identify the amount; but where it is the cash reserves of an associated company, the amount is not required to be identified. In my opinion, that contention ought not to be accepted, if only because there is no challenge to the statement in cl 9.4 that no particular funds have been earmarked by Pasminco Finance Limited for this purpose, and because Wright Heaton Limited v PDS Rural Products Pty Limited (1982) 2 NSWLR 301, 308-9 decides that the precursor to cl 11(a) did not require particulars of cash amounts unless they were set aside for the sole purpose of providing the cash consideration. Wright Heaton has stood for too long for that holding to be the subject of question now.
It is true that the Part A statement does not specify the maximum amount of the CSFB facility. One can imagine that there may be a degree of commercial sensitivity to that piece of information, but that, of course, would not excuse non-disclosure, if disclosure was otherwise required.
It is also true that the Part A statement does not disclose the proportion in which the consideration will be drawn from cash reserves, on the one hand, or borrowings on the other. Nor does it disclose whether and to what extent borrowings will be made from existing lenders in relief of the commitment assumed by CSFB.
In Australian Consolidated Investments Limited v Rossington Holdings Pty Limited (1992) 35 FCR 226, Beaumont J differed from the trial judge, Lockhart J, as to whether cl 11(b) required a specification of the proportions in which the two lenders had agreed to finance the bid. At p 234 his Honour stated:
"In my view it would be material for shareholders considering this bid to know how much each of the lenders had agreed to advance. This has not been stated. That is to say the Part A statement did not, relevantly, identify the lender qua the amount to be advanced in each case."
Sheppard J and Davies J decided the case on different bases, although Davies J agreed in general with the reasons for judgment prepared by Beaumont J. However, Davies J stated that he did not express a view as to whether non-disclosure of the proportions in which funds were to be advanced resulted in the omission of material information. But in ACI Consolidated Investments Limited v Rossington Holdings Pty Limited (1992) 7 ACSR 515, 516 Davies J described the Full Court as having held that the Part A statement did not comply with s 750 in two respects, one of which was non-disclosure of the proportion of funding to be provided by each credit provider. That was in a context, however, where there was an express agreement as to the proportions in which funds would be provided. It was also in a context where the balance sheets of the nominated lenders disclosed that they had insufficient shareholders' funds to provide the monies which might be required.
In Associated Dairies Limited v Central Western Dairy Limited (1993) 44 FCR 335, 340 Ryan J said:
"The purpose of cl 11 of s 750, in my opinion, is to allow offeree shareholders to assess how likely it is that the offeror can pay them if a cash offer is accepted up to the maximum number of shares which the offeror has undertaken to purchase. To that end, the clause requires the Part A Statement to identify each source of the funds and the amount to be derived from each source. I do not understand Sheppard J's reference in Rossington to 'the essential provisions of the loan agreements' to go beyond those terms which are capable to making it more or less likely that the requisite funds will become available to complete the purchase."
However, it needs to be borne in mind that, necessarily, a Part A statement speaks as of its date. Neither cl 11, nor cl 17, was intended to confine or restrict the type of arrangement which an offeror could legitimately make in relation to the funding of a bid. The requirement is one of disclosure. Thus in Rossington (35 FCR 226) at 230, Sheppard J said that a facility, where the making of advances is in the discretion of the lender, may be relied upon for the purposes of cl 11 of s 750, provided the facts are disclosed.
In the present case, as of the date of the Part A statement, the proportions in which the consideration would be drawn from cash reserves on the one hand and borrowings on the other, was not known. Nor was it known whether and to what extent borrowings would be made from existing lenders. The present case is therefore to be distinguished from Rossington. In my opinion, there is no requirement flowing from the Corporations Law that a bid be delayed until matters such as these are crystallised.
In Fraser v NRMA Holdings Limited (1995) 55 FCR 452, in the context of the general requirements of corporate disclosure, the Full Court said that in complex cases it may be necessary to be selective in the information provided, confining it to that where is realistically useful. The funding arrangements here are not excessively complicated, but it does not strike me as being "realistically useful" for the Part A statement to state, for example, that the funding for the bid will come as to x percent from cash reserves, and y percent from the CSFB facility, assuming that none is provided by existing lenders, when the evidence discloses an obligation in the parent company of the offeror to use its best reasonable efforts to ensure that, subject to a qualification, the bid is funded by existing cash reserves, and from drawings under existing facilities, and only to the extent required, under the CSFB facility.
It is true that the Part A statement, cl 9.6, is couched in terms of an intention on the part of the offeror to approach existing lenders to discuss drawing on existing facilities. It does not disclose that such intention derives from the "best reasonable efforts" obligation assumed by the parent company of the offeror. But, having regard to the purpose underlying cl 11, what is important is what the offeror intends to do, rather than why it intends to do it. That is particularly so given that the undertaking, which is the source of the obligation, provides that failure to comply with it will not constitute a default under the CSFB facility, which will continue to be available to be drawn on for the purpose of funding the acquisition notwithstanding failure to comply with the undertaking.
Counsel for the applicant submitted:
"One asks oneself the question: who are to provide the funds for this takeover? The answer is: some is to come from cash; some may come from existing facilities which are available to be drawn, and Pasminco is, under an obligation to seek to have drawn; and some may come from CSFB. That, we say, is the fact …"
and, it was submitted, the fact is not disclosed in the Part A statement.
In my opinion, those matters were in substance disclosed in the Part A statement, with the exception of the matter encompassed by the words italicised. Having regard to the disclosure of the offeror's intentions, the purpose underlying cl 11, and the stipulation that failure to comply with the undertaking does not affect the availability of CSFB's funds, I do not think that the omission of the matter encompassed by the words italicised renders the Part A statement deficient or materially misleading.
The Part A does not disclose which of the existing lenders are to be approached, but it does disclose that no approach had been made to any of them as at the date of the Part A statement. That being so, it cannot be said, as at the date of the Part A statement, that the existing lenders, or some of them are other persons "who are to provide" funds in terms of cl 11(b). The disclosure in cl 9.6 is, in my opinion, both necessary and sufficient for the purposes of cl 11 and 17 of Part A.
Other Material Information – Cl 17 of Part A of s 750
The Facility Letter– Clauses 4(a) and 4(b)
Clause 4(a)
The effect of cl 4(a) of the Facility Letter, when read in conjunction with cl 3.15 of the Term Sheet, is that the parent company must not, and must ensure that the offeror does not, prior to acquiring 100 percent of Savage, allow dividends to be paid by Savage without the prior consent of CSFB (which consent is not to be unreasonably withheld).
Under the articles of association of Savage (Regulation 26) declaration of dividends, and payment of interim dividends are matters committed to the decision of the board of directors.
A written statement would not comply with cl 17 Part A of s 750 of the Law unless, inter alia, it set out information material to the making of a decision by an offeree whether or not to accept an offer, being information which is known to Pasminco and which has not previously been disclosed to the shareholders of Savage.
There is no disclosure in the Part A statement of the matter referred to in cl 4(a) of the Facility Letter.
The applicant contends that it is material to a shareholder, having been made aware in the Part A statement that Pasminco may waive its 90 percent acceptance condition, to know that should the shareholder remain as a minority shareholder, it will not receive dividends unless CSFB consents.
Failure to comply with cl 4(a) of the Facility Letter is, by virtue of schedule 4(c) of the Term Sheet, an event of default, however, the Part A statement, page 9 discloses that the obligation of CSFB to make drawings under the facility available is dependent upon there being no event of default.
Whether a dividend is or is not declared or paid, and if so in what amount, is for the decision of the directors of Savage. Neither Pasminco's, nor CSFB's consent, approval or agreement is required as a condition of the declaration or payment of a dividend. The directors of Savage, in deciding whether to declare or pay a dividend must act in good faith, in what they believe to be in the interests of Savage.
But it is said, that whilst Savage directors would no doubt attend to their duty, it would be commercially unreal to assume that they would not be influenced by the attitude of Pasminco in relation to the declaration or payment of dividends, and that Pasminco's approval to the payment or declaration of a dividend is subject to the prior consent of CSFB, although that consent cannot be unreasonably withheld.
In Pancontinental Mining Limited v Goldfields Limited (1995) 16 ACSR 463, 466 – 468, Tamberlin J summarised a number of general guidelines which he thought could be derived from decisions of the Courts. One of those matters was Guideline 10 to the following effect:
"10.Materiality of information, where there is a complex proposal, involves difficult questions of commercial judgment and matters of degree as to future conduct about which there can be honest and reasonable differences of opinion. It is necessary to bear in mind that the statement should illuminate the issues rather than confuse them by canvassing all the pros and cons of every possibility. The objective is to present a document which can be understood by members of the public and which does not confuse. This includes a considerable degree of selectivity designed to confine the information to that which is really useful. An avalanche of trivial detail is to be avoided." (Citations omitted)
I think that observation is apposite to the present complaint.
Whilst the applicant asserts that disclosure of this matter is necessary, as being information material to the making of a decision by an offeree whether or not to accept an offer, there is really no demonstration that this is so. Obviously enough, it is a matter which could have been disclosed, but having regard to the considerations referred to by Tamberlin J, and quoted above, in my opinion, there is no requirement that it must be disclosed.
Facility Letter, Clause 4(b)
Clause 4(b) of the Facility Letter provides as follows:
"Pasminco agrees that the Offer Terms may only be varied, waived or dropped if Pasminco has consulted with CSFB beforehand and obtained its prior consent. That consent is not to be unreasonably withheld if such action will not result in:
(i) …
(ii)the acquisition becoming unconditional before the acquirer has become entitled to acquire Savage shares representing 90 percent of the issued share capital of Savage."
The effect of cl 4(b) is that Pasminco must obtain the consent of CSFB to any variation of the Offer Terms. CSFB is not able to withhold its consent unreasonably, except in two circumstances. One of those circumstances is as set out above.
This concept is also reflected in the Term Sheet dated 7 October 1998 which accompanies the Facility Letter:
cl 3.15 is an undertaking, effectively in the same terms as paragraph 4(b) of the Facility Letter;
cl 4(c) makes a failure to observe or perform any undertaking and event of default;
cl 1.2(b)(ii) provides that if an event of default subsists, CSFB is not obliged to make funds available to Pasminco.
In the result, should Pasminco choose to waive the 90 percent minimum acceptance condition CSFB is not bound to fund the bid, unless it has consented to a waiver of the minimum acceptance condition. There is no stipulation that consent in those circumstances may not be unreasonably withheld.
Cl 15.3 of the Part A statement contains a statement that Pasminco has no present intention of waiving the minimum entitlement condition in the offer. Cl 8.1 of the offer is the 90 percent minimum acceptance condition. Cl 8.2 of the offer provides that Pasminco may, in accordance with s 663(2) of the Corporations Law, declare offers to be free from (inter alia) the minimum acceptance condition not less than seven days before the Closing Date.
The applicant submits that information in relation to this matter is material to shareholders making an assessment of the ability of Pasminco to pay for the shares for which the offer is made, in the event that Pasminco waives the 90 percent minimum acceptance condition.
It was submitted that materiality arises in this way: if Pasminco does not do everything it can to abide by its obligations "to use its best reasonable efforts" as to whence the money to fund the bid should come, this may well inform the attitude of CSFB as to whether to consent to a waiver of the 90 percent minimum acceptance condition. CSFB, having regard to the "use its best reasonable efforts" as to whence the money to fund the bid should come, might be thought to be less than enthusiastic about lending money for the project, and might exercise its unfettered discretion not to consent to a waiver of the 90 percent minimum acceptance condition in its own interests, for it would thereby be relieved of an obligation to lend any money at all under the facility.
The respondent submitted that this contention is a matter of pure speculation. There is no evidentiary or other basis upon which it could properly be concluded that there was a connection between the "use of its best reasonable efforts" obligation, and the power in CSFB to give or withhold consent to a variation of the minimum acceptance condition.
I agree with the respondents' submissions. In my opinion, there is simply no warrant for adopting the path inherent in the applicant's submissions in this respect. The supposed connection between the "use its best reasonable efforts" obligation, and the power to give or withhold consent to a variation of the minimum acceptance condition, is based upon nothing more than speculation.
Pasminco's intentions about business, assets and employees of Savage – cl 20 of Part A of s 750 of the Law
The Part A statement must set out particulars of the offeror's intentions regarding:
the continuation of the business of the target company;
any major changes to be made to the business of the target company, including any redeployment of fixed assets of the target company; and
the future employment of the present employees of the target company.
If the offeror has not made a decision on these matters, but is considering one or more possible courses of action, the statement must set out that fact, and specify the courses of action concerned, and the reason why no decision has been made.
In Gantry Acquisition Corp v Parker and Parsley Petroleum Australia Pty Limited (1994) 51 FCR 554 at 565 – 566, Burchett J said:
"Clause 20(1) requires 'particulars', not an outline or a general statement; while cl 20(2) precludes an offeror from simply saying no decision has been made where he is considering a possible course of action or possible courses of action – in such a case the statement shall set out that fact and specify the course of action or courses of action concerned and the reason why the offeror has not made a decision on the matter. I have emphasised the word 'specify' because it is a word which leaves no doubt that precision is essential. It should be noticed too that cl 20(2) carefully preserves the full meaning of cl 20(1) by the opening words: 'without limiting the generality …'.
Finally, the anxiety of the legislature to ensure the whole picture is put before shareholders is underlined by cl 17, with its requirement of "any other information material to the making of a decision …"
Where disclosure is required of intentions, or of a possible course of action under consideration, the disclosure must be specific and clear, and not obscured by the use of vague or indeterminate or ambiguous language.
In Gantry (supra) at p 560 Sheppard J said:
"In reaching my conclusion I have taken into account the fact that it is particulars which cl 20 requires. I bear in mind also that cl 20(2) uses the word 'specify'. Accordingly, an offeror must do the best it can to be particular and specific about its intentions. Nevertheless the document is dealing with a commercial situation. It is being delivered in the context in which the offeror does not have control of the target company. In those circumstances it is not only reasonable, it is also necessary, for it to express itself in a guarded way. If it does not do this, it runs the risk that statements it makes may, because of their very particularity, be found to have been misleading."
The offeror's intentions have to be disclosed in regard to all possible eventualities. It is not sufficient to disclose what the offeror proposes to do if the offeror is able to ensure that its nominees constitute a majority of the target's board. The offeror should also disclose its intentions in the event that it's offer becomes unconditional and insufficient acceptances are received to provide the offeror with board control. Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1005, 1010; Renard, Santamaria, Takeovers and Reconstructions in Australia (824).
In paragraph 15.2 of the Part A statement Pasminco states its intentions concerning Savage in the event that Savage becomes a wholly owned subsidiary.
Those intentions include:
the achievement of synergistic benefits from operating Savage's US zinc assets in conjunction with Pasminco's Australian and European zinc operations.
The disposition of Savage's coal interests and its interest in the Ernest Henry copper and gold project.
A review of whether to continue to develop or to dispose of particular exploration assets of Savage.
The probable closure of Savage's Sydney head office as part of a process of reducing or eliminating costs arising from the maintenance of a separate Savage share registry, secretarial and head office functions and costs associated with the listing of Savage.
No complaint is made about the sufficiency of the disclosures of Pasminco's intentions should Savage become a wholly owned subsidiary.
Cl 15.3 deals with the position should Savage become a controlled entity, but not a wholly owned subsidiary of Pasminco. Cl 15.3 provides:
"Although Pasminco has no present intention of waiving the minimum entitlement condition in the offer, if this is done and Savage becomes a controlled entity but not a wholly owned subsidiary of Pasminco, Pasminco presently intends to:
(a)review whether a continuation of the listing of Savage is worthwhile given the expense involved;
(b)replace some or all of the members of the board of directors of Savage (and its subsidiaries) to reflect Pasminco's ownership interest in Savage. No decision on the identity of the replacement board members has yet been made because it would depend on the circumstances at the relevant time; and
(c)implement such of the intentions mentioned above as are consistent with Savage being a controlled entity, but not a wholly owned subsidiary, of Pasminco (including the closure of Savage's head office).
Pasminco would only make a decision on these possible courses of action following receipt of legal and financial advice and Pasminco's intentions must be read as subject to the legal obligation of a Savage board of directors to have regard to the interests of all Savage shareholders."
The amended points of claim (paragraph 30(a)) complain of a failure to disclose Pasminco's intentions as to how Pasminco will sell all Savage's non zinc assets, and use the proceeds to fund the early retirement of debt. That matter was not pressed at the hearing.
Rather, the complaint at the hearing centred around the use of vague, ambiguous and indeterminate expressions, and the failure of Pasminco to disclose which of the "intentions mentioned above" it regards as being consistent with Savage being a controlled entity, but not a wholly owned subsidiary, of Pasminco.
It was submitted that I should infer, that Pasminco must have turned its mind, for example, to the integration of Savage's US assets into the Pasminco group's global zinc and distribution network should Savage become a controlled entity, but not a wholly owned subsidiary. The basis for that contention is the terms of the Part A statement itself, and that it "passes belief", if Pasminco has turned its mind to the closure of Savage's head office in the eventuality under consideration, that it had not also turned its mind to, and formed intentions in relation to, the more fundamental commercial matters should Savage become a controlled entity, but not a wholly owned subsidiary.
I do not read the Part A statement as indicating any particular intention in relation to the closure of Savage's head office should Pasminco become a controlled entity, but not a wholly owned subsidiary of Pasminco. All that the Part A statement says is that closure of the head office is included amongst the matters which will be up for consideration by the reconstituted board of Savage in that event.
There is no evidence before me which would establish that Pasminco had intentions, or had under consideration courses of action should Savage become a controlled entity, beyond those disclosed in cl 15.3.
On a fair reading of this section of the Part A statement, Pasminco is advising shareholders that it cannot presently say whether, or to what extent, policies which it could and would require to be effectuated if Savage were wholly owned, will be effectuated if it is not wholly owned, but is merely a controlled entity.
The law is rigorous in its insistence that a majority shareholder cannot dictate to directors of a company how they shall discharge the duties of office, and rigorous in its insistence that directors of a company act in what they conceive to be the interests of the company as a whole, and not simply in the sectional interests of the major shareholder.
Having regard to the specific statement that Pasminco "would only make a decision on these possible courses of action" when specified conditions have been satisfied, I am not prepared to infer, without evidence, that Pasminco has more specific intentions with respect to the continuation of the business of Savage or major changes to be made to the business of Savage, or the future employment of employees of Savage should it become no more than a controlled entity, than those disclosed in cl 15.3. Not am I prepared to conclude that s 750 cl 20 requires that more specific intentions be formed and disclosed, because any requirement to that effect would pay lip service only to the basic company law principles to which I have referred.
Statements as to Pasminco's intentions should its preferred position that there be no waiver of the minimum acceptance condition change must necessarily be guarded, if only because it is intended to reconstitute the board of directors of Savage, and the reconstituted board will have to decide whether a course of action which would be conducive to the interests of Pasminco is, in the judgment of those board members, in the interests of the shareholders in Savage as a whole.
Accordingly, in my opinion, the challenge to the sufficiency of the cl 15.3 disclosures fails.
Other material information – cl 17 of Part A of s 750 of the Law – benefits from the bid
In addition to the other disclosure requirement, an offeror must set out in the Part A statement:
"… any other information material to the making of a decision by an offeree whether or not to accept an offer, being information that is known to the offeror and has not previously been disclosed to the holders of shares in the target company."
Matter is material is this context if it might reasonably affect, or tend to affect, the decision of the ordinary investor.
In Metal Manufacturers Limited v Marsh Electrical Pty Limited (Supreme Court of NSW, 14 October 1998 – unreported) Bryson J said:
"There can sometimes be compliance with a list of specified disclosures which does not actually reveal a quite important aspect of the subject to which they relate. Cl 17 exists to compliment the more detailed specifications. Cl 17 operates when in fact there is some other information material to the making of the decision and compliance with cl 11 and the other clauses has not brought it out. Cl 17 does not exist to create difficulties for those attempting to comply or to create a disclosure requirement of a significantly more searching kind than the more detailed specification. Questions of materiality under cl 17 are to be approached with due regard to the practicalities of a market."
The applicant claims that the Part A statement failed to set out that the acquisition of Savage would provide Pasminco with a number of benefits. These are said to include:
"1.The environmental record of Savage's Clarksville smelter, which is modern and located in a rural area. This prevents the problems associated with urban locations and allows a nearby market for mine and smelter byproducts.
2. Profitable operations with low break-even zinc price.
3.A distribution network, and branding and market penetration in USA for Pasminco's metal products.
4. Strengthening of Pasminco's global market position.
5. Assistance to Pasminco's growth strategy.
6. Opportunities for concentrated rationalisations.
7. A balancing of Pasminco's smelter and mining outputs."
The documents tendered in evidence confirm that each of these matters is a matter which Pasminco regards as making Savage a desirable target. The respondent accepts that the Part A statement does not refer to the items numbered 1, 3 and 7. I think it is probably true to say that there is no specific reference, at least in terms, to the particular items numbered 2, 4, 5 and 6 although the general thrust of cl 15.2 is advantages which will accrue to Pasminco as a result of synergies which can be achieved by operating Savage's US zinc assets in conjunction with Pasminco's Australian and European zinc operations.
It is submitted that even if these matters are not required to be disclosed by virtue of clauses 11 and 20 they are nonetheless material and should be disclosed by virtue of cl 17. Materiality is said to lie in the fact that these are matters which make the target one of particular value to the bidder, and that disclosure of matters of that type is required, particularly where they are expected to give rise to benefits which are synergistic in character.
Materiality is also said to lie in the fact that the disclosures may go to the probability that the bid price would be increased, as well as to whether it is desirable to remain in as a shareholder in the event that the minimum acceptance condition is waived. Reliance is placed upon the statement by Tamberlin J in Pancontinental Mining Limited v Goldfields Limited (1995) 16 ACSR 463, 467:
"7.Consideration of a Part A statement involves a question as to whether full and sufficient information has been given to enable the offeree to make a judgment concerning how valuable the acquisition will be to the offeror, and thus of making an informed assessment of whether the offeror may be prepared to pay more for the shares than its offer suggests."
On the other hand, the legislation assumes that criticisms have the commercial desirability, or the sufficiency of an offer will be dealt with in the offeree's Part B statement. Disclosure of speculation is not required, and is to be avoided. Qiw Retailers Limited v Davids Holdings Pty Limited (1992) 36 FCR 386, 391. The respondent submits that no case requires an offeror to list in its Part A statement the benefits which it perceives will be the consequence of the acquisition except to the extent that this is required by cl 20 of Part A. No case, it is said, decides that opinions or assumptions of the offeror as to why the acquisition is expected to deliver value to the bidder is required to be disclosed, again unless this is a consequence of compliance with the cl 20 obligation.
The respondent relies upon the observations of Finkelstein J in Aberfoyle Limited v Western Metals Limited (1998) 156 ALR 68. That was a case in which there was a cash bid in which the Part A statement did not disclose the rationale for the bid and the benefits for the offeror and its shareholders arising from the acquisition, disclosure of the economic assumptions which underpinned the offer price. It was said that these omissions resulted in a breach of cl 17. Finkelstein J rejected the proposition that cl 17 required an offeror to disclose its valuation of the shares or the economic assumptions on which that evaluation has been based. His Honour said that cl 17 is concerned with the disclosure of facts and circumstances of which the offeror is aware and not with the disclosure of matters of opinion about which minds may differ or with assessments that are based on variable assumptions or predictions. 156 ALR at page 91.
At page 91 his Honour said:
"I reject completely the suggestion that the Part A statement should set out the rationale of the acquisition and the benefits that would accrue to Western Metals and its shareholders. This is a cash bid. The shareholders of Aberfoyle must decide whether to accept or reject a cash offer. It is of no consequence to them how the bid, if successful, will impact on Western Metals or its shareholders."
This statement places a narrower construction on cl 17 than that adopted by Tamberlin J in Pancontinental (supra). Renard and Santamaria, Takeovers and Reconstructions in Australia (at 822) offers the following opinion:
"Perhaps the proper way to reconcile these statements is to require that, if the offeror is aware of some facts which are not publicly available and would, if known, indicate that the acquisition is of significant potential benefit to the offeror, those facts are 'information' which must be disclosed."
Irrespective of whether the two approaches can be reconciled, and whatever the means of reconciliation may be, in my opinion, it is an exaggeration of the role of cl 17 to require that all perceptions, opinions or assumptions of the offeror as to why the acquisition is expected to deliver value to the bidder should be itemised in the Part A statement. The statement in Pancontinental, referred to above, cannot in my respectful opinion, be taken at the flood. For example, an offeror cannot be expected to disclose, in a market situation, how high it might be prepared to go in order to secure control.
In any event, it is by no means apparent to me that the greater specificity inherent in the disclosure of the seven itemised matters would have any real bearing on the making of a decision by an offeror whether or not to accept the offer proposed to be made. The specified items (with the possible exception of item 1) are really only an elaboration of the position already disclosed in the Part A statement, that synergistic benefits will accrue to Pasminco as a result of the integration of the zinc operations of the two companies.
So far as the item numbered 1 is concerned, it is no more than an assertion that Savage's Clarksville zinc refinery is considered by Savage or perhaps, by Pasminco, to be a valuable asset of Savage. Savage, in a circular to its shareholders of 28 October 1998 (Exhibit E) asserted that Savage's Clarksville US zinc refinery has great strategic value to Pasminco. The circular went on to assert that Clarksville's value is partly due to its location. That tends to provide a practical illustration of the proposition that one of the roles of the offeree is to provide information to its shareholders as to the respects in which is it contended that a proposed bid pays insufficient regard to the attractiveness of the target or its assets.
In Pancontinental, at page 467 Tamberlin J said:
"8.The Court when asked to restrain the making of an offer needs to be astute to see that the breach of the Law relied upon is real and of substance. Otherwise there is a risk that the public interest, which there is in a competitive market, will suffer. It must be tolerably clear that any breach of s 750, which is alleged to have occurred, involves the withholding of relevant information from shareholders." See Gantry (supra) at 564-5 per Sheppard J.
For the reasons which I have given, the seven itemised non-disclosures do not satisfy that description. In the result, the alleged contraventions of s 750 are not made out.
Benefits under s 698 of the Law
It is common ground that:
Pasminco, as at the date of the Sale Agreement proposed to send takeover offers within the next following 4 months.
Each of the Selling Shareholders was, at the time of the Sale Agreements, "a person whose shares may be acquired under the takeover scheme".
Subsection 698(5) has no application to the present facts.
At issue is whether the Sale Agreements involved the giving or agreeing to give a "benefit that the proposed offeror is not proposing to provide under the takeover offers". "Benefit" is defined in s 9 of the Corporations Law to mean:
"… any benefit, whether by payment of cash or otherwise."
The amended points of claim alleged that, by the Sale Agreements, Pasminco gave or agreed to give two benefits of that type, viz:
The termination of the Sale Agreement, and the release of the obligations of the selling shareholder thereunder, if another bid is made for Savage which is not matched by Pasminco before it becomes too late for the Selling Shareholder to accept the other bid (Cl 4(d)).
Payment within 5 days of the offer being declared unconditional, (Cl 2).
At the hearing, the second of these alleged benefits was not relied upon.
The evidence established the following matters in relation to one of the Selling Shareholders, namely the second respondent ("Tyndall").
It was originally invited to grant an option in favour of Pasminco to purchase its shares in Savage. One of the conditions of exercise of the proposed option was that Tyndall shall not have already accepted Pasminco's takeover offer (c/f Sale Agreement: Cl 4(c) - there was no condition equivalent to 4(d).
CSFB considered that the approach embodied in the draft option agreement "is relatively attractive to institutions in that it allows them to participate in any improved Pasminco bid (even if not a higher bid from a third party).
Tyndall was not prepared to accept the proposal in that form.
A revised form of option agreement was devised by CSFB which included a stipulation substantially equivalent to 4(d).
That was not acceptable to Tyndall.
Agreements in the form of the Sale Agreements were ultimately executed.
Tyndall, at least, was informed that it was unlikely that Pasminco would bid for the shares in Savage unless Tyndall entered into a Pre Bid Acceptance Agreement.
The matters of which the applicant now complains were promoted by CSFB to Tyndall as "attractive features" of the proposal.
Tyndall, at least, was conscious that the Sale Agreement represented an attempt "to thread its way through this legal minefield" (loosely, the accumulation of a significant pre bid shareholding) and that legal challenge to the arrangement was inevitable.
From this I conclude (and it is a conclusion which I would have drawn in any event, and which I did not understand the respondents to contest) that a Sale Agreement would be more attractive to an institutional shareholder contemplating the sale of its Savage shares, if it contained stipulations equivalent to clauses 4(c) and (d), than if it did not.
The "benefit" on which the applicant relies is the termination of the Sale Agreement upon the occurrence of an event which affords the selling shareholder the opportunity to accept a higher and unmatched bid. The applicant contrasts the position of a Selling Shareholder under the sale agreements, with the position of a share holder who has accepted Pasminco's bid in the event that a higher unmatched bid from a third party emerges. The effect of Cl 4(d) of the Sale Agreements is that the selling shareholder is released from its obligation to sell the shares to Pasminco, and it may accept the higher bid of the third party, if it considers that, on balance, it is more attractive when account is taken of all its terms.
Clause 5.7 of the Pasminco proposed takeover offer denies that opportunity to those of the general body of shareholders in Savage who have accepted the Pasminco bid. Clause 5.7 provides:
"Once you have accepted this offer, you will be unable to revoke your acceptance and the contract resulting from your acceptance will be binding on you, subject to Cl 8.4 [which concerns conditions] and section 658 of the Corporations Law” [which concerns extensions of the offer].
Pasminco could, with respect to all the accepted offers, avail itself of its entitlement to waive any conditions to which the bid is subject, "go unconditional", and itself accept the higher offer from the third party.
The opportunity which Cl 4(d) confers on a selling shareholder is submitted to be a capacity right or liberty which arises by the operation of a condition of the agreement; it confers an advantage on the selling shareholder, albeit contingent, and it is an advantage which would be likely to influence or induce the sale of shares.
In Sagasco Amadeus Pty Ltd v Magellan Petroleum Australia Limited (1998) 177 CLR 508, 516 the High Court accepted that the evident policy of the takeover provisions of the Law included the fourth Eggleston principle contained in s 731(d):
"(d) that, as far as practicable, all shareholders of a company [should] have equal opportunities to participate in any benefits accruing to shareholders under any proposal under which a person would acquire a substantial interest in the company."
At p 517 it was said:
"Clearly, the legislature wished to extend the principle of equality to a period before the period of the takeover scheme and it did so by referring to proposed takeover offers and adopting a limit of four months consistently with s 641(1)."
Completion of the Sale Agreement is dependant upon Pasminco making takeover offers for all Savage shares at a price not less than 85c per share, and upon those offers becoming unconditional. The Sale Agreements are thus calculated to draw out from Pasminco a bid for the benefit of all shareholders in Savage at a price not less than the sale price. The evidence establishes, as earlier indicated, that but for the Sale Agreements, it was unlikely that Pasminco would have been prepared to launch a bid.
Clauses 4(a), (b) and (c) of the Sale Agreements are advantageous to the institutions (in the sense that an agreement which contains provisions to that effect is more likely to be attractive than one which does not). Comparable conditions are not to be found in the takeover offers, because whilst they are of relevance to the position of the selling shareholders, they are of no relevance to the position of offerees under the bid. It was not contended that those stipulations constituted s 698(2) benefits.
Condition 4(c) is of interest. Its effect is that the Sale Agreements having drawn out a bid, the selling shareholders are to be in no worse position in relation to the acceptance of the bid than the general body of shareholders. The selling shareholders can sell into the bid, and thereby be discharged from the sale agreements, and gain the same benefits as accrue to all accepting shareholders, such as participation in any increase in the bid price.
Clause 4(d), in my view, operates in a similar way and has a similar effect. The Sale Agreements, having drawn out a bid from Pasminco, if a higher competing bid emerges which is not matched by Pasminco, the selling shareholders are to have the same opportunity as all other shareholders (who have not accepted the Pasminco bid) of accepting the competing offer.
In commercial terms, the Sale Agreements reflect an expectation that Pasminco will, in consequence of their execution, bid for all Savage shares, but that the selling shareholders are not to be disadvantaged in relation to the Pasminco bid or its sequelae by reason of having entered into these agreements. They are to have the same opportunities as all offerees have of selling into the Pasminco bid, or accepting another offer (provided, in the case of the selling shareholders, that it is a higher unmatched offer) unless they have already accepted the Pasminco bid. That may produce a difference in outcome between a selling shareholder (who has not sold into the bid) and a shareholder (who has accepted the bid) in the event that a higher unmatched offer emerges. But that difference in outcome is not the result of inequality of opportunity; it arises simply because one shareholder has accepted the bid, and the other has not.
Viewed in that way, the termination events in Cl 4 of the Sale Agreements, are not s 698 "benefits". Their purpose and their effect is to ensure that the selling shareholders are not disadvantaged vis a vis the general body of shareholders by reason of their having entered into the Sale Agreements which provided the catalyst for the bid. In the modern argot, a level playing field is preserved.
The Sale Agreements contain in Cl 4, the seeds of their own destruction. On the occurrence of a termination event, the agreements come to an end. Any benefit which accrues to the selling shareholder in those circumstances does not come from the operation of the sale agreement. It comes because the selling shareholder is restored to its prior position, and can take advantage of whatever opportunities are open to it on that account. Those opportunities are not given by the offeror, except to the extent that they are available to shareholders generally.
This approach is, I think, consistent with authority. It is consistent with the decision of Dowsett J in Primac Holdings v Iama Ltd& Ors (1996) 22 ACSR 454. There a pre bid option contained a stipulation that the granting of it would not preclude the grantee from selling into the bid. At p 463 Dowsett J held that the right to sell into the bid was simply a right retained by the grantor, notwithstanding the grant of the option, to accept any subsequent offer made by the grantee for the shares the subject of the option.
"The option agreement did not confer such right upon (the grantor). Rather the parties excluded from their agreement such rights, then vested in (the grantor), as would necessarily be exercised in accepting such a takeover offer.”
It is also consistent with the approach adopted by Santow J in Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (1998) 28 ACSR 1. There, in determining whether there was a "net benefit", Santow J (at pp 32-33) considered that an opportunity to revoke a contract under a takeover offer and to sell elsewhere was not a benefit of the kind contemplated by s 698, and in any event was inherently speculative, and should thus be left out of account.
The claim under s 698 therefore fails.
Contravention of s 697
Paragraph 4(c) of the Sale Agreement is relied upon as giving rise to a contravention of s 697(1) of the Law. That section applies (relevantly) where:
(a) a person acquires shares in a company.
(b) within 6 months, a bid is made for shares of that type.
(c)The offeror gives a benefit to a person who, immediately prior to the acquisition of the shares referred to in (a), had a relevant interest in those shares.
(d) The benefit is attributable to the acquisition referred to in (a).
(e) The value of the benefit is determinable by reference to the bid price.
It is submitted that "it is simplistic and essentially unreal" to say that the right to sell into the bid does not derive from Cl 4(c), and that Dowsett J's characterisation of the corresponding entitlement of the grantor under the option there under consideration is wrong. I do not agree. I accept the proposition that there is excluded from the reach of the Sale Agreements the subsisting entitlement of the selling shareholders to dispose of their shares into any Pasminco bid.
It is a term of the arrangements embodied in the shareholder agreements, that the entitlement or opportunity which a selling shareholder has to sell into a Pasminco bid, is not to be prejudicially affected or diminished by those arrangements.
Any benefit to the selling shareholder accrues by reason of the fact that a takeover offer is made to shareholders in Savage, and by reason of the fact that, as between itself and Pasminco, the selling shareholder has retained the right to accept that offer. The preservation of a pre-existing ability of a shareholder to accept an offer which may be made is not the giving of a benefit.
Further, I find it hard to see how, on any view of the matter, the requirements of para (d) are met. Any benefit which accrues to a selling shareholder is not "attributable" to the acquisition of the relevant interest brought about by the Sale Agreement. If it exists, it arises on termination of that agreement, as a result of which "the acquisition referred to in paragraph (a)" comes to an end. It is therefore not "attributable" to the acquisition.
Accordingly, the claim based on a contravention of s 697(1) is not made out.
Clause 14
In the light of the conclusions to which I have come there is no inaccuracy in clause 14 of the Part A Statement, which asserts the absence of any escalation agreement.
Conclusion
In the result, the applicant has not made out any of the matters on the basis of which it seeks to impugn the Part A statement. The application is therefore dismissed.
I certify that this and the preceding twenty-four (24) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely
Associate:
Dated: 2 November 1998
Counsel for the Applicant: N C Hutley SC
with D J HammerschlagSolicitor for the Applicant: R W Schaffer
Clayton UtzCounsel for the 1st Respondent: N Young QC
with R J WrightSolicitor for the 1st Respondent: D Robertson
Freehill Hollingdale & PageSolicitor for 2nd Respondent D O'Bryen Counsel for 4th Respondent A J Meagher SC
with I M JackmanSolicitor for 4th Respondent A G Hartnell
Atanaskovic Hartnell LawyersDate of Hearing: 17 & 18 November 1998 Date of Judgment: 2 December 1998
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