MCELWAINE J:
1 Alumina Ltd proposes an arrangement, the commercial purpose of which is to effect an acquisition of all its shares by Alcoa Corporation, which is incorporated under the laws of the State of Delaware in the United States of America and its shares are listed on the New York Stock Exchange. Pursuant to a scheme implementation deed entered between Alumina, Alcoa and AAC Investments 2 Pty Ltd on 12 March 2024, and amended on 21 May 2024, the parties have agreed that AAC, a wholly owned indirect subsidiary of Alcoa, will acquire 100% of the shares in Alumina by way of a Scheme of Arrangement between Alumina and its shareholders. Under the Scheme, each eligible Alumina shareholder will be entitled to receive new Alcoa shares in the form of ASX-listed New Alcoa CDI's.
2 In these reasons, each reference to a statutory provision is to the Corporations Act 2001.
3 The detail of the Scheme is set out in the Scheme Booklet as registered by ASIC. Alumina is a 40% partner in the Alcoa World Alumina and Chemicals Joint Venture. According to the Scheme Booklet, the transaction "represents a logical combination which simplifies the ownership structure" of the joint-venture and aligns the interests of two of the joint-venture partners (Alumina and Alcoa) and their respective shareholders. On implementation of the Scheme, the participants will own approximately 31% of the combined group, with existing Alcoa shareholders owning approximately 68%. Alumina will become a wholly-owned subsidiary of Alcoa and Alcoa will have a 100% interest in the joint-venture.
4 On 7 June 2024, I made orders pursuant to s 411(1) convening a meeting of the shareholders of Alumina to consider, and if thought fit, to approve the Scheme as set out in the schedule to those orders.
5 The meeting was held on 18 July 2024, at which the Scheme was agreed to by 87.56% of Alumina shareholders present and voting, and by 99.77% of the votes cast.
6 Today is the date of the second court hearing. Alumina relies on the affidavit of Katherine Kloeden affirmed on 19 July 2024. Ms Kloeden is the General Counsel and Company Secretary of Alumina. She relevantly deposes that:
(a) A copy of the orders made on 7 June 2024 was provided to ASIC that day;
(b) On 7 June 2024, a copy of the Scheme Booklet was lodged with ASIC for registration pursuant to s 412(6);
(c) The Scheme was registered on 11 June 2024;
(d) Notice of the shareholders meeting was given as required by the orders of 7 June 2024, electronically to those shareholders who had elected to receive notices electronically and by post, to those who had not made that election. The documents comprised correspondence in the approved form including links to online portals to access the Scheme Booklet, the question form, and a proxy form;
(e) That notice was given, as required by the orders, on or before 18 June 2024;
(f) When material dispatched in electronic form "bounced back", steps were taken to provide the notices to those shareholders by post;
(g) The shareholders meeting to consider the Scheme convened at 2 pm on 18 July 2024 at the State Library of Victoria in Melbourne;
(h) Mr Peter Day acted as Chairman of the Scheme meeting. He answered relevant questions from shareholders. In particular, he referred to the independent expert report which concluded that the Scheme is demonstrably fair and reasonable and in the best interests of the Alumina shareholders;
(i) A very considerable majority of shareholders, 99.77%, voted for the resolution that the Scheme be implemented. Very few shareholders abstained. The result was that the Scheme resolution was passed by a majority in number of Alumina shareholders present and voting on the Scheme resolution, in person or by proxy, and by more than 75% of the votes cast. The number of shareholders present and voting, including by proxy, constituted approximately 4.22% of the total number of Alumina shareholders and the number of votes cast, including by proxy, constituted approximately 72% of the total number of shares eligible to be voted;
(j) By comparison, the participation rate at the recent Annual General Meeting of Alumina in 2024 was 3.88% of the total number of shareholders eligible to vote, and the number of votes cast (including by proxy) constituted 72.68% of the total number of shares eligible to be voted. There were similar turnouts at each of the Annual General Meetings held in 2022 and 2023;
(k) No eligible shareholders were excluded from voting at the Scheme meeting;
(l) On 16 July 2024, Alumina published a notice of the second Court hearing in the required form;
(m) As at 8:41 am on 19 July 2024, Alumina had not been served with any notice of appearance from any shareholder wishing to oppose the approval of the Scheme. No shareholder has appeared today, in person or by counsel, to oppose the Scheme.
7 Section 411(4) relevantly provides that a compromise or arrangement is binding on the members if, and only if, at a meeting convened in accordance with an order made by the Court, the members vote in favour of a resolution to approve of the arrangement by a majority of at least 75% and it is approved by an order of the Court.
8 The principles which inform the exercise of the discretion to approve of a scheme of arrangement are settled; see generally Re Amcor Ltd (No 2) [2019] FCA 842 at [7] - [11], Beach J and Re Australia and New Zealand Banking Group Ltd (No 2) [2022] FCA 1547 at [10], O'Bryan J. In Re Amcor Ltd, Beach J with characteristic succinctness at [7] - [8] in part said:
In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions.
Now whilst there is no exhaustive statement of the matters as to which I must be satisfied before granting approval, it is not in doubt that in exercising my power under s 411(4)(b), I should be satisfied that:
(a) the Scheme complies with the law, including the relevant procedural requirements;
(b) the Scheme was approved by shareholders acting in good faith and for proper purposes;
(c) there has been an accurate and comprehensive disclosure of the details of the Scheme and its effect to those voting on it;
(d) there is no suggestion of oppression of any minority;
(e) there is no evidence that any third parties will be disproportionately adversely affected by the operation of the Scheme;
(f) the Scheme does not offend against any aspect of public policy; and
(g) all matters that could be considered relevant to the exercise of my discretion have been drawn to my attention.
9 Alumina has prepared its evidence conformably with the Court's Schemes of Arrangement Practice Note dated 13 October 2023. I must be satisfied that the orders of 7 June 2024 have been complied with, the Scheme meeting was properly convened, that each requirement of the Federal Court (Corporations) Rules 2000 (Cth) has been met, that full and fair disclosure has been provided to the shareholders of all information material to the proposed resolution and that no matters of concern relevant to the exercise of my discretion have been brought to my attention.
10 I am satisfied in accordance with the affidavit evidence of Ms Kloeden as follows.
11 The Scheme materials required to be dispatched pursuant to the orders of 7 June 2024 were provided as required and in particular the Scheme Booklet and its associated material was provided to all shareholders by 18 June 2024. I am satisfied that the shareholders were provided with a copy of or access to the Scheme Booklet registered by ASIC.
12 The Scheme meeting commenced at approximately 2 pm on 18 July 2024, conducted simultaneously in person and pursuant to an online meeting platform. Mr Peter Day presided as the Chairperson.
13 The members considered and passed a resolution to approve of the Scheme by a majority of 87.56% of shareholders present and voting, including by proxy, and by 99.77% of the votes cast, including by proxy. Thus, the statutory requirement at s 411(4)(a)(ii)(B) has been met.
14 I do not have any concern about the meeting turnout, which is consistent with member turnout at Annual General Meetings of Alumina held in 2022, 2023 and 2024. Although the turnout for the Scheme meeting was approximately 4.22% of the total number of shareholders, I am satisfied that notice was provided to the shareholders in accordance with the orders of 7 June 2024, and there is no matter which points to any irregularity in the procedure for the dispatch of that notice. More importantly, in my view is the fact that for those members who did vote, the Scheme received overwhelming support.
15 The orders of 7 June 2024, dispensed with the requirements of rr 2.4(1), 2.15, 3.4 and Form 6 of the Rules and required that by no later than 16 July 2024, Alumina publish an announcement via the ASX Market Announcements Platform, substantially in the form attached to the earlier affidavit of Ms Kloeden made on 6 June 2024. I am satisfied that this notice was published, no notice has been received from any person wishing to appear to oppose the approval of the Scheme, and there is no appearance to that effect today.
16 The Scheme is subject to several conditions precedent, including Alumina shareholder approval, Alcoa stockholder approval, Foreign Investment Review Board approval and Court approval at the second hearing. I have been provided with, and have received in evidence, a certificate dated 22 July 2024 signed by Michael Ferraro, director, and Katherine Kloeden, company secretary to the effect that each condition precedent, other than that relating to Court approval of the Scheme, has been satisfied. I accept that evidence.
17 At the first court hearing, I was satisfied that the draft Scheme Booklet was a draft explanatory statement which satisfied the requirements of s 412(1). It follows from my findings about compliance with the dispatch orders, that I am satisfied that there has been full and fair disclosure of all relevant material information to the shareholders.
18 Turning to what might be described as the residual discretion pursuant to s 411(4)(b), as stated by Beach J in Re Amcor Ltd at [7], the Court considers whether the Scheme is fair and reasonable to an intelligent and honest shareholder, who is properly informed. As is well understood, the members are a better judge of what is in the interests of the members, than this Court and unless there is some good reason to the contrary, effect should be given to their commercial judgment.
19 The evidence supports the conclusion that the Scheme should be approved: it has the overwhelming support of the shareholders who voted in favour of the resolution to approve of the Scheme, it is supported by each of the directors of Alumina, it is consistent with the conclusion reached by the independent expert, there has been proper disclosure and there is no opposition to implementation of the Scheme.
20 There is one complicating aspect of the Scheme. All securities offered in the United States of America must satisfy the registration requirements of the Securities Act 1933 and be registered with the US Securities and Exchange Commission. There are requirements to disclose financial information and to comply with the registration requirements, which include a prospectus. However, there is the prospect of engaging the exemption at s 3(a)(10) in the case of securities issued in exchange for other securities and where the terms and conditions are approved of by a court after consideration of the fairness of the terms and conditions. Alumina intends to apply to engage the exemption.
21 The exemption provides:
Except as hereinafter expressly provided, the provisions of this subchapter shall not apply to any of the following classes of securities:
…
[10] … any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval.
22 The operation of this provision was considered by Beach J, in Re Newcrest Mining Ltd [2023] FCA 1080 at [72]:
Now before an issuer can rely on the exemption, a number of conditions must be satisfied. These conditions arise from the combined effect of the matters set out in s 3(a)(10) of the Securities Act as well as the Staff Legal Bulletin No. 3A (CF), Division of Corporation Finance, SEC, 18 June 2008 (SLB 3A). These conditions have been considered by me for the purposes of other schemes (Re Amcor (No 2) [2019] FCA 842 at [32] to [38]). One of the conditions is that the relevant court must be advised before any hearing at which the fairness of the terms and conditions of the scheme is approved that the issuer will rely on the s 3(a)(10) exemption based on that court's approval in the event that the scheme is in fact approved (s 3(a)(10)) of the Securities Act as well as SLB 3A. Further conditions include that the court approve the terms and conditions of the issuance and exchange to be conducted pursuant to the scheme of arrangement and that the court find, before approving the transaction, that the terms and conditions of the exchange are fair, both procedurally and substantively, to those to whom securities will be issued.
23 At [73], his Honour approved of the approach of Jacobson J in Re Atlantic Gold NL (No 2) [2014] FCA 869, which has been referred to and approved on a number of subsequent occasions. Mr P Crutchfield KC, Senior Counsel for Alumina, submits that I should adopt the same approach in this matter by addressing matters relevant to the application of the exemption. I am satisfied that this is appropriate. Accordingly, I state that I am satisfied as to the following matters:
(a) I was advised prior to commencement of the approval hearing, that reliance would be placed on the exemption based on the Court's approval of the Scheme;
(b) The Court has been informed of the securities to be offered as the consideration for the Scheme and the independent expert report of Grant Samuel and Associates Pty Ltd, which is attached to the Scheme Booklet, states the Scheme is fair and reasonable and therefore in the best interests of the Alumina shareholders in the absence of a superior proposal. In particular, the expert concluded that the strategic merit of the Scheme is compelling, the equity in Alumina has been valued in the range of $0.82 - $0.98 per share, equivalent to $1.26 - $1.51 per share, the value of Alumina reflects the value of its 40% interest in the joint venture, the assessed value of the Scheme consideration is $1.45 - $1.62 per share based on an Alcoa stock price within the range of $33.00-$37.00 (based on an exchange rate of one Australian dollar equals $0.65 USD) and the assessed the value of the Scheme consideration overlaps with the underlying value of Alumina and on that basis the Scheme is fair and is in the best interests of the shareholders of Alumina;
(c) As required by the relevant provisions of the Corporations Act, this Court has considered at this hearing the fairness and reasonableness of the proposed Scheme, and has concluded that it meets each requirement;
(d) The hearing today has been open to the public and any person with a proper interest has standing to appear. Notice of the hearing was given as included in the Scheme Booklet sent to all shareholders prior to consideration of the Scheme by the shareholders on 18 July 2024, and notified publicly on 16 July 2024 through the mechanism of the ASX Announcements Platform. No shareholder has appeared before the Court in opposition to the Scheme; and
(e) It is appropriate to include a notation in today's orders to the effect that Alumina will rely on this Court's approval of the Scheme for the purposes of engaging the exemption.
24 I turn to the requirements of s 411(17) which provides that the Court must not approve an arrangement unless:
(a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or
(b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement;
but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b).
25 I have received and admitted into evidence correspondence from ASIC dated 19 July 2024, that it has no objection to the arrangement. There is no evidence that the Scheme was proposed to avoid the operation of Ch 6 of the Act.
26 The final matter that requires consideration is that Alumina seeks an order pursuant to s 411(12) exempting it from compliance with s 411(11), that a copy of every order made by the Court for the purposes of approving of the Scheme be annexed to a copy of the Constitution of Alumina issued from the date of the order.
27 As correctly submitted for Alumina, the purpose of annexing a copy of the order is to ensure that any modification of the rights of the shareholders and which may affect persons dealing with the company, are disclosed: Re Equinox Resources Ltd (2004) 49 ASCR 692; [2004] WASC 143 at [22]. In this case, the Scheme does not alter the Constitution of Alumina or the rights of its members, creditors or other persons dealing with it, the members of Alumina have been fully informed of the Scheme and will become aware of this Court's approval and, in any event, upon implementation of the Scheme Alumina will become a wholly-owned subsidiary of AAC, which is aware of the Scheme. In those circumstances, there is no utility in insisting upon compliance with s 411(11).
28 For these reasons, I order as follows:
- Pursuant to section 411(4)(b) of the Corporations Act, the Scheme be and is hereby approved.
- Pursuant to section 411(12) of the Corporations Act, Alumina be exempted from compliance with section 411(11) of the Corporations Act in respect of the Scheme.
29 It is appropriate to include in the orders notations as proposed. These are as follows:
A. There has been produced to the Court a statement in writing by the Australian Securities and Investments Commission (ASIC) in accordance with section 411(17)(b) of the Corporations Act 2001 (Cth) (Corporations Act) that ASIC has no objection to the proposed scheme of arrangement which was agreed to by the shareholders of the plaintiff (Alumina) at a meeting on 18 July 2024, the terms of which were set out in Annexure A to the orders of the Court made on 7 June 2024 (Scheme).
B. The New Alcoa Shares (which may be represented by New Alcoa CDIs) and the New Alcoa Preferred Shares to be issued by Alcoa Corporation (Alcoa) pursuant to the Scheme (and as defined in the Scheme) (Alcoa Shares) will not be registered under the US Securities Act of 1933 (US Securities Act) or the securities laws of any other state jurisdiction in the United States. Alcoa and Alumina intend to rely on the Federal Court's approval of the Scheme for the purpose of qualifying for an exemption from the registration requirements of the US Securities Act, provided for by s 3(a)(10) of that Act.
C. The Court notes the following matters:
(i) the Court was advised before commencement of the approval hearing that Alumina and Alcoa intend to rely upon the exemption in s 3(a)(10) of the US Securities Act on the basis of the Court's approval of the Scheme;
(ii) the Court has been informed of the securities to be offered as scheme consideration, and an independent expert report has valued those securities and concluded that the proposal is in the best interests of Alumina's shareholders;
(iii) the Court, as it is statutorily required to do, has held a hearing to consider the fairness and reasonableness of the proposed Scheme; and
(iv) that hearing was open to the public, and any person to whom Alcoa Shares are to be issued had standing to appear. Notice of the date of that hearing was included in the Scheme Booklet sent to all shareholders, and it was included in the Notice of the second court hearing published on the ASX Announcements Platform by Alumina on 16 July 2024, and no shareholder has given notice of any intention to appear at the hearing to oppose the approval of the Scheme.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine.