MHM Automation Limited
[2024] NZHC 532
•13 March 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-664
[2024] NZHC 532
UNDER Part 19 of the High Court Rules 2016 IN THE MATTER
of a scheme of arrangement under Part 15 of the Companies Act 1993
APPLICATION BY
MHM AUTOMATION LIMITED
Applicant
Hearing: 21 February 2024 Appearances:
O D Peers and L C Elliot for Applicant
B G Walker for Interested Party (Bettcher Industries Inc)
Judgment:
13 March 2024
REASONS JUDGMENT OF ASSOCIATE JUDGE LESTER
RE MHM AUTOMATION LIMITED [2024] NZHC 532 [13 March 2024]
[1] MHM Automation Limited (MHM) has implemented a scheme of arrangement (the Scheme) between it and its shareholders, concerning the acquisition of 100 per cent of the shares in MHM by Merlin NZD Bidco Limited (Merlin).
[2] Interim orders were made on 11 December 2023 concerning the procedural steps MHM was to undertake in advancing the Scheme and in respect of the materials to be provided by its two shareholders.1
[3] As will be addressed, those procedural requirements were satisfied by MHM and it subsequently sought final orders approving the Scheme under pt 15 of the Companies Act 1993 (the Act).
[4] That application came before me on 21 February 2024 and an oral results judgment was issued making the final orders as sought by MHM. I now give reasons for that judgment.
[5] I acknowledge the comprehensive and thorough submissions prepared by Mr Peers, counsel for MHM, in support of the application and this judgment is based largely, if not entirely, on his submissions.
[6] MHM’s application was not opposed. Mr Walker appeared for Bettcher Industries Inc (Bettcher), the parent company of Merlin.
Background
[7] MHM designs and supplies innovative, engineered solutions for the food and primary industries, with a particular focus on bespoke food processing and packaging technologies. The MHM Group comprises MHM and 17 wholly owned subsidiaries. MHM is a listed issuer that has its ordinary shares quoted on the NZX Main Board and is, therefore, a "code company" (as defined in s 2A(1) of the Takeovers Act 1993) for the purposes of pt 15 of the Act.
1 Re MHM Automation Ltd [2023] NZHC 3610.
[8] Bettcher is a United States incorporated company and is a developer and manufacturer of equipment in the food processing industry. It has business operations in North America, South America, Asia and Europe. It identified MHM's business as being particularly suited to Bettcher's expansion objectives. It accordingly approached MHM in August 2023 indicating an interest in acquiring MHM's shares. This initial approach was formalised in a confidential and non-binding letter of intention from Bettcher dated 22 September 2023.
[9] The letter of intention triggered MHM board's protocol for potential takeover offers, resulting in MHM’s board appointing a sub-committee of independent directors (referred to in the court papers filed as the Takeovers Committee). The Takeovers Committee delegated the board's functions and powers to: approve the Scheme documentation; enter into the Scheme documentation (where applicable); and take all other actions required in connection with the Scheme.
[10] On 3 November 2023, following a period of exclusivity to enable Bettcher to undertake due diligence, further develop its proposal and to enable the parties to negotiate the transaction documentation, MHM and Bettcher entered a Scheme Implementation Agreement (SIA). An SIA is a standard form of contract entered into between acquirers and target companies. It sets out the key terms and conditions on which an acquirer and a target company intend to propose and implement a scheme of arrangement. An SIA will, among other things, set out various conditions precedent, as well as deal with protection mechanisms.
[11] Immediately following execution, the SIA was publicly announced by MHM on its website and lodged on the NZX market announcement platform.
[12] On 8 December 2023, MHM filed its originating application seeking orders approving the Scheme (Originating Application) together with an interlocutory application without notice for interim orders (in relation to procedural matters) (Interim Application).
[13] By judgment dated 11 December 2023, interim orders were granted on a without notice basis (Interim Judgment). The Originating Application was set
down for a hearing on 29 February 2024, subsequently varied to 21 February 2024 by Minute dated 12 December 2023. Interim orders were sealed on 13 December 2023 and announced by MHM on its website that same day, with the sealed orders simultaneously being lodged on the NZX market announcement platform (Interim Orders). The Scheme meeting materials were sent to MHM shareholders by post and email prior to 22 December 2023, as required by the Interim Orders, and were also lodged on the NZX market announcement platform and uploaded onto MHM's website.
[14] The Scheme meeting took place on 26 January 2024. Attendees joined either online or in-person at The George, 50 Park Terrace, Christchurch. The resolution to approve the Scheme was passed by 99.96 per cent of votes cast on the resolution, in turn reflecting 86.6 per cent of all shares in MHM entitled to vote on the resolution.
[15] The Takeovers Panel has provided a no-objection statement dated 9 February 2024 which is before the court. The no-objection statement confirms that the Takeovers Panel is satisfied that:
(a) all material information relating to the Scheme has been disclosed to shareholders;
(b) the standard of disclosure to shareholders has been equivalent to the standard that would be required by the code in a code-regulated transaction (or is otherwise appropriate in all of the relevant circumstances);
(c) the interest classes of shareholders have been composed appropriately;
(d) the protections available to shareholders (and other equity security holders) under the code and/or the Takeovers Act 1993 (or equivalents to those protections) have been provided for under or in connection with the Scheme; and
(e) there are no other factors which the Panel considers to be applicable in the relevant circumstances, bearing in mind the respective roles of the Panel and the court.
Legal principles
[16] Section 236(1) of the Act permits the court to order a scheme of arrangement to be binding on MHM on such terms and conditions as the court thinks fit. Section 237(1) provides the court with the power to make additional orders giving effect to any arrangement approved under s 236.
[17] Section 236A of the Act is also engaged in this instance, given MHM is a "code company" (as defined in s 2(1) of the Takeovers Act),2 and the scheme of arrangement affects the voting rights of MHM. Where s 236A applies, the court may not make an order that affects the voting rights of a code company unless:
(a)the code company’s shareholders approve the arrangement by a resolution approved by a majority of:
(i)75 per cent of the votes of the shareholders in each interest class entitled to vote and voting; and
(ii)a simple majority of the votes of those shareholders entitled to vote; and
(b)either:
(i)the court is satisfied that the shareholders of the code company will not be adversely affected by the use of s 236(1) rather than the Takeovers Code to effect the change involving the code company; or
(ii)the applicant has filed a statement from the Takeovers Panel indicating that the Takeovers Panel has no objection to an order being made under s 236(1).
[18] The function of the Takeovers Panel in schemes of arrangement under pt 15 of the Act is set out in the guidance note for schemes of arrangement, the latest version of which was published by the Takeovers Panel on 1 November 2023 (Scheme Guidance Note). The Takeovers Panel's review is particularly focused on whether
2 Being a New Zealand registered company with its ordinary shares quoted on the NZX.
interest classes have been appropriately identified and on the quality of disclosure to shareholders in the scheme documentation including (in particular) the scheme booklet.
[19] The test to be applied where orders are sought approving schemes of arrangement is by now well settled and consistently applied.3 The leading decisions of Re Nuplex Industries,4 Re Fliway Group Ltd5 and Re Abano Healthcare Group Ltd,6 confirm the four-part test to be applied by the court is whether:
(a)there has been compliance with the statutory provisions as to meetings, resolutions, the application to the court, and the like;
(b)the scheme has been fairly put to the class or classes concerned, and that if a circular or circulars have been sent out, as is usual, whether before or after the making of the application to the court, they give all the information reasonably necessary to enable the recipients to judge and vote upon the proposals;
(c)the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and
(d)the arrangement was such that an intelligent and honest person of business, a member of the class concerned, and acting in respect of his or her interest, might reasonably approve it.
Re CM Banks Ltd [1944] NZLR 248 (SC) at 253; Re Nuplex Industries [2016] NZHC 1677;
Re Fliway Group Ltd [2017] NZHC 3216; and Re PGG Wrightson Ltd [2019] NZHC 1780 at [12].
4 Re Nuplex Industries, above n 3, at [10].
5 Re Fliway Group Ltd, above n 3, at [8].
6 Re Abano Healthcare Group Ltd [2020] NZHC 3343 at [21]-[22].
[20] The court also needs to consider, with respect to the fourth limb above, whether the proposed arrangement is generally fair and equitable.7
Has there been compliance with the statutory provisions?
[21] The court’s focus under this heading tends to be on whether the applicant (MHM) has complied with any applicable statutory provisions and, in particular, with interim orders. I am satisfied that MGM has satisfied this limb for the following key reasons.
The Interim Orders have been complied with
[22]MHM has complied with the Interim Orders.
[23] The distribution of email and hard copies of the Scheme meeting materials to all MHM shareholders on 19 and 20 December 2023 was as required by the Interim Orders and ahead of the 22 December 2023 deadline.
[24]In addition to the above:
(a)MHM made electronic copies of the Scheme meeting materials available on the MHM website contemporaneously with the sending of email and hard copy versions; and
(b)in accordance with MHM's ongoing disclosure obligations under the NZX Listing Rules, the Scheme meeting materials were publicly announced and lodged on the NZX market announcement platform on 18 December 2023.
[25] Of the 51 shareholders for whom no address details were held at the time of the Interim Orders, postal addresses were subsequently located for three of them. The remaining 48 shareholders did not receive postal or email copies and, it has been confirmed, did not vote. However, as noted above, the Scheme meeting materials were publicly available through both the NZX market announcement platform and MHM's
7 Re Nuplex Industries, above n 3, at [11], citing Re Auckland International Airport [2014] NZHC 405 at [9]; and Re ACS (NZ) Ltd [2012] NZHC 1396 at [6].
website. The 48 shareholders who did not receive post or email copies held an aggregate total of 0.03242 per cent (28,867 shares) of total issued capital.
[26] The Interim Orders required that MHM would hold the Scheme meeting not earlier than 22 January 2024. The Scheme meeting took place on 26 January 2024 at The George and online via a virtual meeting link. This means there was a period of 19 working days (as defined under the Act) from the date of sending of the hard copies of the Scheme materials on 20 December 2023 until the Scheme meeting. Equivalent schemes of arrangements approved by the courts indicate 10 working days is more common. The same time period also constitutes at least 20 business days (in accordance with the applicable definition under the NZX Listing Rules) which is in satisfaction of recommendation 8.5 of the NZX Corporate Governance Code.
[27] Voting at the Scheme meeting was conducted by poll as required by NZX Listing r 6.1 and the Interim Orders. The meeting was conducted in accordance with MHM's constitution (and to the extent applicable, ss 121-125 of the Act), with an independent scrutineer as the Interim Orders required.
[28] No oppositions have been filed and served on MHM (either by shareholders, Bettcher, Merlin, the Takeovers Panels, and/or other third-party entities). Merlin, as the acquiring entity, has filed a notice of appearance in support dated 5 February 2024.
The resolution to approve the Scheme was approved by the required majorities under s 236A(4)
[29] As set out in the Notice of Meeting contained within the Scheme booklet, the resolution put to shareholders was:
That the Scheme (the terms of which are described in the Scheme Booklet) be and is hereby approved.
[30] Neither Bettcher nor Merlin or any of their associates hold any shares in MHM, meaning there was only one interest class of shareholders for the purposes of voting at the Scheme meeting.
[31] The threshold requirements under s 236A(4) of the Act that a majority of 75 per cent of the votes of the shareholders in each interest class (being only one interest class) and a simple majority of the votes of those shareholders entitled to vote, was surpassed in this instance:
(a)the Scheme was passed by 99.96 per cent of votes cast on the resolution; and
(b)in total, votes were cast in respect of 77,127,317 out of 89,035,734 of the issued shares in MHM, equating to 86.6 per cent of all issued shares.
[32] The results of the Scheme meeting were announced and lodged on the NZX market announcement platform at 12.37 pm on the same day as the Scheme meeting.
No -objection statement supplied by Takeovers Panel
[33] Section 236A(2)(b) of the Act also requires satisfaction of either of the below alternate limbs:
(i)the court is satisfied that the shareholders of the code company will not be adversely affected by the use of s 236(1) rather than the takeovers code to effect the change involving the code company; or
(ii)The applicant has filed a statement from the Takeovers Panel indicating that the Takeovers Panel has no objection to an order being made under s 236(1).
(emphasis added)
[34] In satisfaction of subsection (2)(b)(ii), the Takeovers Panel issued a no-objection statement on 9 February 2023. While the court is the final determiner of this matter, the fact and content of the no-objection statement issued by the Takeovers Panel is a matter justifiably given considerable weight by the courts.8
8 Re Abano Healthcare Group Ltd, above n 6, at [31]; and Re Pushpay Holdings Ltd [2023] NZHC 1083 at [19].
Was the Scheme fairly put to the shareholders?
[35] In my view, the Scheme meeting materials (including, in particular, the Scheme booklet) fully and fairly explained the nature of the Scheme proposal; its genesis and intended effect; MHM's reasons for proposing the Scheme; and the reasons for the non-conflicted directors' unanimous recommendation that shareholders vote in favour of the Scheme.
[36] Further, the Scheme meeting materials were distributed to MHM shareholders in a timely and practical way. As noted in the Interim Judgment, the purpose of the Interim Orders was to give "effective parties reasonable notice of the Scheme as well as setting out appropriate processes for them to participate in the Scheme Meeting".9 The final version of the notice of meeting and Scheme booklet sent to shareholders as part of the Scheme clearly set out the relevant dates for the Scheme meeting and for the filing of any notice(s) of opposition clearly and prominently. In addition, both the Interim Orders (setting out all relevant dates) and the Scheme meeting materials were uploaded onto the NZX market announcement platform and MHM's website and were, therefore, publicly available.
[37] Mr Burt's second affidavit sworn 15 February 2024 also confirms that shareholders who attended the Scheme meeting were given a full and reasonable opportunity to raise questions, both in person and online. The Scheme meeting online registration platform also provided an opportunity to shareholders to register questions with Link prior to the Scheme meeting.
[38] Finally, MHM shareholders were also given appropriate opportunity to oppose the Originating Application if they so wished. The final date for filing any oppositions (5 February 2024) meant that there were at least 5 clear working days (as defined in the Act) from the date of the Scheme meeting (26 January 2024) until the date for any oppositions to be filed. This complies with the Scheme Guidance Note (at [3.23]), which states that code companies should allow at least a (calendar) week from when the vote is held until papers are due to be filed with the court for final orders.
9 Re MHM Automation Ltd, above n 1, at [15].
Were the shareholders fairly represented by those who attended the meeting?
[39] This limb primarily considers whether interest classes have been properly constituted. The applicable definition under the Act is not prescriptive — in broad terms an interest class arises in relation to shareholders whose rights are sufficiently similar that they can consult together about a common interest.10 In this case there is only one interest class: all MHM shares are fully paid up shares with identical voting rights and neither Bettcher, Merlin nor any of their associates hold any shares in MHM.
[40] Adopting the approach from Re Nuplex Industries, there are some key indicators which are present, showing that the interest class was fairly represented and that those who voted were acting bona fide, including:11
(a)the high proportion of shareholders who voted (in this instance equating to 86.6 per cent of all issued shares in MHM). This percentage is materially higher than other schemes that have been approved by the court;12
(b)the overwhelming support for the resolution by shareholders who voted. Of all voting shareholders, 99.96 per cent voted in favour of the scheme, and only 0.04 per cent voted against. This level of support is equal to or substantially exceeds earlier schemes approved by the court;13
(c)the fact that no shareholders have filed a notice of opposition; and
(d)there is no evidence or suggestion that the votes cast at the Scheme meeting were anything other than bona fide.
10 See sch 10(b) of the Companies Act 1993.
11 Re Nuplex Industries, above n 3, at [22]. Similar considerations were also discussed in Re Pushpay Holdings Ltd, above n 8, at [36]; and Re Abano Healthcare Group Ltd, above n 6, at [34].
12 See for example, Re Abano Healthcare Group Ltd, above n 6, at 64.7 per cent; and Re Nuplex Industries, above n 3, at 76.92 per cent.
13 See for example, Re Abano Healthcare Group Ltd, above n 6, at 95.40 per cent; and Re Nuplex Industries, above n 3, at 98.07 per cent; and Re Pushpay Holdings Ltd, above n 8, at 79.7 per cent.
[41]Accordingly, I am satisfied this limb is satisfied.
Is the Scheme such that an intelligent and honest person of business might reasonably approve it?
[42] As noted above, the Scheme was overwhelmingly supported by the shareholders who voted on the resolution. Earlier decisions emphasise that the courts must give particular weight to the views of the shareholders, being the persons best-placed to determine what is in their best interests.14 This also reflects a key objective of the Takeovers Panel —to assist shareholders to decide for themselves on the merits of a transaction. Here the outcome of the Scheme meeting is clear and definitive.
[43] The consideration of $1.70 per Scheme share represented a significant premium against the volume weighted average price at which MHM has traded for the one, six and 12-month periods pre-dating MHM's announcement on 3 November 2023 that it had entered into the SIA. In particular:
(a)86.6 per cent to MHM's closing share price on the NZX on 2 November 2023;
(b)84.2 per cent to MHM's one month volume weighted average price on the NZX to 2 November 2023;
(c)85.7 per cent to MHM's six month volume weighted average price on the NZX to 2 November 2023; and
(d)92.1 per cent to MHM's 12 month volume weighted average on the NZX to 2 November 2023.
[44]While the assessment of this criterion is not simply a numerical exercise, the
86.6 per cent premium against MHM's closing share price on the date prior to
14 Re Pushpay Holdings Ltd, above n 8, at [38(f)], Re Abano Healthcare Group Ltd, above n 6, at [36]; Re Nuplex Industries, above n 3, at [24]; Re Fliway Group Ltd, above n 3, at [24]; and Re Tilt Renewables Ltd [2021] NZHC 1861 at [18].
announcement of the SIA compares favourably to other reported schemes which have been approved by this Court:
Reported schemes Premium uplift on closing price15 Re Abano Healthcare Group Ltd16 99 per cent Re Methven Ltd17 45 per cent Re Nuplex Industries18 45 per cent Re Pushpay Holdings Ltd19 37.9 per cent Re Tilt Renewables Ltd20 25 per cent Re Trade Me Group Ltd21 20 per cent Re Fliway Group Ltd22 13 per cent
[45] Reported decisions have also placed significant weight on the report issued by the independent advisor23 (this is a requirement insisted upon by the Takeovers Panel as part of applying for a no-objection statement), and the recommendations of independent directors and/or the board of the target company.24
[46] Here, the independent advisor's report (at [1.4]) by Simmons Corporate Finance concludes that the Scheme consideration of $1.70 per MHM share falls comfortably in the mid-to-upper end of the independent advisor's valuation range for MHM shares. MHM's independent directors also unanimously recommended25 that the shareholders vote in favour of the Scheme for reasons summarised in the Chair's Letter summarised at s 1 of the Scheme booklet and set out in further detail in paras 4.4 to 4.7 of the Scheme booklet.
15 Being the closing price on the last trading day prior to announcement of the Scheme.
16 Re Abano Healthcare Group Ltd, above n 6, at [40].
17 Re Methven Ltd [2019] NZHC 608 at [9(d)].
18 Re Nuplex Industries, above n 3, at [27(b)].
19 Re Pushpay Holdings Ltd, above n 8, at [38(a)].
20 Re Tilt Renewables Ltd, above n 14, at [18].
21 Re Trade Me Group Ltd [2019] NZHC 840 at [26].
22 Re Fliway Group Ltd, above n 3, at [23].
23 Re Abano Healthcare Group Ltd, above n 6, at [39]; and Re Nuplex Industries, above n 3, at [27].
24 See for example Re Nuplex Industries, above n 3, at [25]; Re Fliway Group Ltd, above n 3, at [24; Re Tilt Renewables Ltd, above n 14, at [18]; Re Pushpay Holdings Ltd, above n 8, at [38(g)] and Re Abano Healthcare Group Ltd, above n 6, at [37].
25 The recommendation was expressly subject to the independent advisor's report concluding that the scheme consideration was within or above its valuation range for MHM shares and no Superior proposal emerging.
[47] The evidence confirms no superior proposal was received since the announcement of the SIA. Furthermore, the independent advisor's report (at [1.4) states that if the Scheme is not implemented, "…we consider there is a real prospect that MHM's share price could recede from current level”.
[48] The Scheme will not have any adverse effects on creditors. While the change in shareholding ownership under the Scheme will not affect MHM's liabilities to its creditors in any way, reported decisions have referred to evidence that a target company expects to satisfy the statutory solvency test under s 4 of the Act after the acquisition.26 The evidence is that MHM expects to satisfy the statutory solvency test prescribed by s 4 of the Act following acquisition. MHM has a strong net equity position. In such circumstances, creditors will not be prejudiced.
A final comment on voting agreements
[49] The Scheme Guidance Note has a specific section discussing voting agreements (at [5.13] to [5.24]), which are a common device sought by scheme promoters to increase deal certainty. Here, there is a voting agreement dated 3 November 2023 entered into between Bettcher and certain MHM shareholders who together hold 47.6 per cent of all issued capital.
[50] The entering into of voting agreements by shareholders of a target company will trigger various disclosure requirements as discussed in the Scheme Guidance Note (at [5.19] to [5.22]). Mr Peers submitted the Takeovers Panel reviews such disclosures as part of its assessment of the Scheme process in determining whether to issue a no-objection statement on a case-by-case basis. In this instance, the Takeovers Panel has issued a no-objection statement, which in effect confirms that on the information available and/or provided to it, it is satisfied with the disclosures made by MHM in respect of the Scheme.
26 See for example, Re Nuplex Industries, above n 3, at [26]; Re Fliway Group Ltd, above n 3, at [25]; Re Tilt Renewables Ltd, above n 14, at [20]; Re Pushpay Holdings Ltd, above n 8, at [38(e)]; and Re Abano Healthcare Group Ltd, above n 6, at [38].
[51] While the effect of the voting agreements was to commit 47.6 per cent of all issued share capital in MHM (subject to certain conditions) to vote in favour of the Scheme, additional shareholder support was always required to satisfy the requisite voting thresholds under s 236A of the Act. In this case, total Shareholder votes cast reflected 86.6 per cent of issued share capital, with 99.96 per cent being in favour.
Conclusion
[52] For all of the above reasons, I determine the Scheme satisfies the four-limb test to be applied. The Scheme is consistent with the authorities and the way that ss 236 and 236A of the Act have been applied in the past.
Associate Judge Lester