Ticor Limited ACN: 009 084 851 In the Matter of Ticor Limited; ACN: 009 084 851

[2005] FCA 1555

FEDERAL COURT OF AUSTRALIA

Ticor Limited ACN: 009 084 851 In the Matter of Ticor Limited
ACN: 009 084 851  [2005] FCA 1555

CORPORATIONS  - scheme of arrangement – acquisition of minority shares by majority shareholder – approval by meeting of minority shareholders – scheme approved – no question of principle

Corporations Act 2001 (Cth) s 411(6), s 411(12)

IN THE MATTER OF TICOR LIMITED ACN 009 084 851
WAD 244 OF 2005

FRENCH J
1 NOVEMBER 2005
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 244 OF 2005

IN THE MATTER OF TICOR LIMITED
ACN 009 084 851

BETWEEN:	TICOR LIMITED ACN 009 084 851 Plaintiff
JUDGE:	FRENCH J
DATE OF ORDER:	1 NOVEMBER 2005
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1.Pursuant to s 411(6) of the Corporations Act 2001, the scheme of arrangement annexed to the affidavit of Bruce Walker Arnold, sworn 6 September 2005, is approved.

2.Pursuant to s 411(12) of the Corporations Act 2001, the plaintiff is exempted from compliance with s 411(11) of the Corporations Act 2001.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 244 OF 2005

IN THE MATTER OF TICOR LIMITED
ACN: 009 084 851

BETWEEN: TICOR LIMITED ACN: 009 084 851
Plaintiff

JUDGE:	FRENCH J
DATE:	1 NOVEMBER 2005
PLACE:	PERTH

REASONS FOR JUDGMENT

1. Ticor Limited (Ticor) applies to the Court for approval of a scheme of arrangement between its members.  Under the proposed scheme of arrangement Kumba Investments (Australia) Pty Ltd (Kumba Investments), which presently holds 51.22% of the issued shares in Ticor, would acquire all remaining ordinary shares in the company for $1.875 cash per share.  Kumba Investments is a wholly owned subsidiary of Kumba Resources Ltd (Kumba Resources). 

2. On 22 September 2005 I made orders directing the convening of a meeting of members of Ticor to be held on 26 October 2005 to consider and, if thought appropriate, to approve the scheme of arrangement. Kumba Investments and its associates would not vote at the scheme meeting.  Directions were also made for a Scheme Booklet, approved in draft by the Court, to be sent on or before 27 September to each of Ticor’s shareholders recorded on its Register of Members as at 5pm on 22 September.

3. The meeting of shareholders having approved the proposed scheme of arrangement, the matter now comes back to the Court for approval under s 411(6) of the Corporations Act 2001 (Cth) (the Act).

4. The background to the proposed scheme is set out in the independent report prepared by KPMG Corporate Finance (Aust) Pty Ltd (KPMG) dated 26 August 2005 which was included in the Scheme Booklet.  As the report explains Ticor is an Australian public company which through joint venture and investment interests is involved in the extraction and concentration of mineral sands to produce titanium dioxide feed stock for the pigment industry, finished titanium dioxide pigment and various saleable co-products.  It has operations in Australia and South Africa.  At 25 August 2005 it had a market capitalisation of approximately $475 million. 

5. After some negotiation, on 5 August 2005 Ticor and Kumba Investments entered into a Merger Implementation Deed under which they agreed to propose to Ticor’s shareholders, other than those associated with Kumba Investments, the scheme of arrangement which is the subject of these proceedings.  The proposed transaction is subject to various conditions precedent including:

   1.That KPMG concludes that the proposed transaction is in the best interests of Ticor non-associated shareholders.

   2.The S & P ASX 200 Index does not fall below 3,500 on any trading day prior to the date of the second Court hearing to ratify the proposed scheme.

   3.Separate deeds are entered into with various parties currently holding options over unissued shares in Ticor for the cancellation of the relevant options.

   4.Confirmation is received from certain of Ticor’s financiers that they will agree to waive any technical default that may arise as a result of completing the proposed transaction.

6. As the independent report explains Kumba Resources is a diversified mining and exploration company which operates through five divisions, iron ore, coal, base metals, heavy minerals and industrial minerals.  At 25 August 2005 it had a market capitalisation of approximately $4,900 million.

7. In KPMG’s opinion, having considered the overall implications of the proposed transaction, the proposed scheme of arrangement is in the best interests of Ticor’s non-associated shareholders.  In forming this opinion KPMG considered the proposed transaction to be fair and reasonable to those shareholders. It assessed the fully diluted value of a Ticor share inclusive of a premium for control to lie in the range of $1.82 to $2.13.  In arriving at that valuation it placed reliance on the reports of independent mineral industry specialists it engaged for that purpose.

8. KPMG stated the payment to the non-associated shareholders in consideration for the transfer of their shares to Kumba Investments under the proposed transaction, is $1.875 per share.  The consideration per share was considered to be fair as it lay within the assessed value range of between $1.82 and $2.13 per share, albeit towards the low end of that range.  The assessed value range of a share in Ticor was based on the discounted cash flow methodology applied to three different cash flow scenarios in respect of Ticor's 50% interest in the Tiwest Joint Venture and two different cash flow scenarios in respect of Ticor's 40% interest in Ticor SA. 

9. An assessment of value solely on the basis of Ticor's existing operational model for Tiwest and Ticor SA, adjusted to reflect operational and macroeconomic assumptions referred to in the report, implied a range of values for a Ticor share of between $1.58 to $1.86.  The KPMG value per share included an uplifted 24 cents per share at the low end of the range and 27 cents per share at the high end to reflect the potential value of future expansion.  KPMG was of the view that the prospects for expansion are strong.  Based on the price offered under the proposed transaction and the range of values implied by Ticor's existing operational cash flows as amended, Kumba Investments is paying a premium of between approximately 1% and 9% for that expansion potential. 

10. The independent report noted that Kumba Investment already holds approximately 51.5% of Ticor's issued capital.  Any counteroffer for Ticor as a whole would need the support of Kumba Investments to be successful.  No alternative offer or firm commitment from any alternative third party had emerged at the date of the report.  KPMG considered the prospects of a higher offer emerging in the future to be slim.  It said that the consideration under the proposed transaction represented a premium to the price of a Ticor share immediately before the initial proposal was received, as well as a premium to prices at which Ticor shares had recently traded.  KPMG also observed that in the event that the proposed transaction were unsuccessful, Ticor's share price might fall.  Approval of the proposed transaction provided a certain exit from a traditionally illiquid stock. 

11. Non-associated shareholders who accepted the transaction would be selling out of upside potential associated with expansion.  Other major shareholders in Ticor, AXA Asia Pacific Holdings Ltd and Perennial Value Management Ltd, which hold about 76% of the non-associated shareholdings, have indicated their intention to vote in favour of the proposed transaction. 

12. Following the Court order of 22 September 2005, a mailout to shareholders in Ticor was conducted.  Each shareholder was sent a pack comprising the Scheme Book with a personalised proxy form and a reply-paid envelope.  The packs, some 1,780 in all, were collected by Australia Post from the office of D and D Mailing Services on 27 September 2005 for delivery to the shareholders.  The list of shareholders was taken from the Register as it stood at 5 pm on 22 September 2005.  Notices of the meeting were advertised on 15 October 2005 in the Weekend Australian and the Weekend Australian Financial Review. 

13. At the meeting ten members of Ticor, representing 2,384,006 of its shares, attended in person.  Proxies for 323 members, representing 100,730,071 of the shares in the company, were lodged.  The resolution for approval of the scheme of arrangement was put.  A poll was required by the Chairman.  The result was that 293 members of Ticor, namely 88% of members present in person, or by proxy, representing 99,993,375 shares in the company, that is 97% of the shares eligible to vote, voted in favour of the resolution.  Forty members of Ticor, representing 12% of those present in person or by proxy and 3% of the shareholders eligible to vote, voted against the resolution.  In the result, the scheme of arrangement was approved by a majority of the members of Ticor present and voting, holding more than 75% of the value of the issued shares represented at the meeting. 

14. Today's hearing was advertised on Monday, 24 October 2005, in the West Australian, the Australian and the Australian Financial Review.  No party has appeared to oppose the application.  On 31 October 2005 the Australian Securities and Investments Commission (ASIC) wrote to the solicitors for Ticor advising that, under s 411(17)(b) of the Act, it had no objection to the scheme of arrangement on the basis that it was satisfied that it had not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act. 

15. I have also been provided with a certificate indicating that all of the conditions precedent in the merger implementation agreement and the scheme, other than the condition relating to approval by this Court, have either been satisfied or waived.  I am satisfied that the approval of the scheme, approved by the meeting of shareholders, is appropriate.  As was put to me by counsel for the plaintiff, the best judge of their commercial interests are the shareholders themselves.  Their judgment is supported by a comprehensive independent report and in the circumstances I propose to make the orders sought as follows:

    1.Pursuant to s 411(6) of the Corporations Act 2001, the scheme of arrangement annexed to the affidavit of Bruce Walker Arnold, sworn 6 September 2005, is approved.

    2.Pursuant to s 411(12) of the Corporations Act 2001, the plaintiff is exempted from compliance with s 411(11) of the Corporations Act 2001.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Associate:

Dated:              November 2005

Counsel for the Plaintiff:	Mr PD Evans
Solicitor for the Plaintiff:	Freehills
Counsel for Kumba Investments (Australia) Pty Ltd:	Mr C Zelestis QC and Mr B Luscombe
Solicitor for Kumba Investments (Australia) Pty Ltd :	Mallesons Stephen Jaques
Date of Hearing:	1 November 2005
Date of Judgment:	1 November 2005