APN Outdoor Group Limited, in the matter of APN Outdoor Group Limited [2018] FCA 1425

MARKOVIC J: 1 On 10 September 2018, on the application of the plaintiff, APN Outdoor Group Limited (APN Outdoor), I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act), after a first hearing, including orders for the convening of a meeting of APN Outdoor's members to consider and vote upon a proposed scheme of arrangement (Scheme) and that the explanatory statement required by s 412(1)(a) of the Act to accompany notices of the Scheme be approved. These are my reasons for making those orders.

background 2 APN Outdoor is an Australian public company listed on the Australian Securities Exchange (ASX). It is an outdoor advertising operator in Australia and New Zealand and is primarily engaged in offering outdoor advertising products and services. APN Outdoor currently operates across billboards (both classic and digital), transit, rail and airports. The majority of its revenue is generated through the sale of advertising space primarily to advertising agencies across its inventory of billboards. 3 JCDecaux SA (JCDecaux) is a French company specialising in "out-of-home" advertising. It does not hold any of the issued shares in APN Outdoor.

The Scheme 4 On 26 June 2018 APN Outdoor entered into a scheme implementation deed (SID) with JCDecaux pursuant to which APN Outdoor agreed to propose the Scheme to all holders of ordinary shares in APN Outdoor (Scheme Shareholders). In accordance with the SID, APN Outdoor and JCDecaux have agreed that JCDecaux ANZ Pty Ltd (Acquirer), a wholly owned subsidiary of JCDecaux, will acquire 100% of the issued share capital of APN Outdoor (Scheme Shares). 5 The terms of the Scheme are outlined in Annexure B to the draft scheme booklet (Scheme Booklet). It is proposed that: APN Outdoor shareholders will transfer their shares to the Acquirer; the consideration for each share transferred will be $6.70 in cash as at the Scheme record date, which is currently scheduled to be 25 October 2018, less the amount of any special dividend declared by the APN Outdoor board (Scheme Consideration); payment of the Scheme Consideration is secured by a deed poll executed by JCDecaux and the Acquirer; and the scheme will effect the acquisition of APN Outdoor by the Acquirer and will result in APN Outdoor becoming the subsidiary of the Acquirer and being delisted from the ASX. 6 The APN Outdoor directors appointed an independent expert, Lonergan Edwards & Associates Limited (Lonergan Edwards), to consider whether in their opinion the Scheme is fair and reasonable and in the bests interests of the APN Outdoor shareholders. Lonergan Edwards has prepared a draft report in which they conclude that the Scheme is fair and reasonable and in the bests interests of APN Outdoor shareholders in the absence of a superior proposal. Nathan Benjamin Toscan, a director and authorised representative of Lonergan Edwards who, together with Craig Edwards, had overall responsibility for the preparation of the report, affirmed an affidavit in which he confirmed that he and Mr Edwards continued to hold the opinions expressed in the draft report and that they intend to sign a copy of the report in the form of the draft for inclusion in the Scheme Booklet. 7 In the draft report Lonergan Edwards expresses the view that the total cash consideration of $6.70 is within its assessed value range for APN Outdoor shares on a 100% controlling interest basis, being between $6.33 and $6.88 per share. 8 The APN Outdoor directors have unanimously recommended that, in the absence of a superior proposal and subject to the independent expert continuing to conclude that the Scheme is in their best interests, APN Outdoor shareholders should vote in favour of the Scheme at the proposed scheme meeting.

legal framework and general PRINCIPLES 9 Section 411(1) of the Act confers a power on the Court to order a meeting of members to be convened, and to approve the applicable explanatory statement, where the following matters are satisfied: (1) a compromise or arrangement is proposed between a Pt. 5.1 body and its members or any class of them; (2) application for the order is made in a summary way by, relevantly, the body; (3) 14 days' notice of the hearing of the application, or such lesser period of notice as the Court or the Australian Securities and Investments Commission (ASIC) permits, has been given to ASIC: s 411(2)(a) of the Act; (4) the Court is satisfied that ASIC has had a reasonable opportunity to: (a) examine the terms of the proposed compromise or arrangement to which the application relates and a draft of the explanatory statement relating to the proposed compromise or arrangement; and (b) make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement: s 411(2)(b) of the Act; and the proposed Scheme Booklet provides proper disclosure to shareholders: s 412(1)(a) of the Act, see In the matter of DUET Finance Limited [2017] NSWSC 415 at [15] (per Black J) and the cases cited therein. 10 There is also a need to demonstrate that the scheme is bona fide and properly proposed: see Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 at [19]. 11 In Associated Advisory Practices Limited, in the matter of Associated Advisory Practices Limited [2013] FCA 761 at [22] Farrell J said the following about the exercise of the Court's power discretion under s 411(1) of the Act: The Court will not ordinarily convene a meeting of members to consider a scheme of arrangement unless the Court is satisfied that the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting of members, the Court would be likely to approve the scheme on the hearing of an unopposed application: Re Central Pacific Minerals NL [2002] FCA 239 at [8]; Re CSR Ltd (2010) 183 FCR 358 at [12]; Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 504. By granting leave to convene the meeting, the Court does not give its imprimatur to the proposed scheme or foreshadow its approval at the second court hearing for the purposes of s 411(4)(b): Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36]; Australian Securities Commission v Marlborough Gold Mines Limited at 504-505. The question for the Court is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed as being beneficial to members: In re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 243; Re CSR Ltd at [80]. The Court does not need to be satisfied that no better scheme could have been proposed: Re Foundation Healthcare Ltd at [44]. Ultimately, the question is for the members themselves: see FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72. 12 There are three stages to an application under s 411 of the Act: first, the Court approves the convening of a scheme meeting and approves the draft explanatory statement to be sent to the scheme members; secondly, the members vote on the proposed scheme at the scheme meeting; and thirdly, the Court approves the proposed scheme: see Re CSR Ltd (2010) 183 FCR 358 at [7] (per Keane CJ and Jacobson J). 13 At both Court hearings there is a duty of disclosure which falls on the plaintiff and its counsel given that, in a technical sense, the application proceeds ex parte in the absence of any defendant or contradictor: see Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [7] (per Barrett J).

Part 5.1 body 14 APN Outdoor is a Pt 5.1 body: see definition in s 9 of the Act which, relevantly, includes a company.

Arrangement 15 The term "arrangement" is of wide import: see Re NRMA Ltd (No 1) (2000) 156 FLR 349; [2000] NSWSC 82 at [20] (per Santow J). I was satisfied that the Scheme comfortably falls within the concept of a "compromise or arrangement" within the meaning of s 411 of the Act.

ASIC has had a reasonable opportunity to consider the Scheme 16 On 24 August 2018 the solicitors for APN Outdoor served a copy of the originating process on ASIC and provided a draft of the Scheme Booklet to it for review and comment, together with its proposed annexures. 17 In its letter dated 7 September 2018 to the directors of APN Outdoor, ASIC indicated that: the requirement that it be given at least 14 days' notice of the hearing of an application under s 411(1) of the Act unless the Court permits a shorter period had been satisfied; and it had had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and to make submissions to the Court in relation to them as required by s 411(2)(b) of the Act.

Scheme Booklet provides adequate disclosure 18 Based on the evidence before me, I was satisfied that the Scheme Booklet provides adequate disclosure. Among other things, it sets out the key features of the Scheme, its advantages and disadvantages and has been amended to reflect comments received from ASIC. In addition, as further described at [22]-[26] below, steps have been taken by APN Outdoor on the one hand and JCDecaux and the Acquirer on the other to confirm the veracity of the statements in the Scheme Booklet insofar as they were each responsible for them.

Scheme is bona fide and properly proposed 19 I was satisfied that the Scheme is bona fide and properly proposed because: by entering into the SID, APN Outdoor has committed itself to implementing the Scheme; the directors of APN Outdoor have unanimously recommended the Scheme; and the Scheme Booklet includes the independent expert report prepared by Lonergan Edwards in which they conclude that the Scheme is fair and reasonable and in the best interests of APN Outdoor shareholders in the absence of a superior proposal.

No apparent reason why the Scheme should not be approved if the necessary votes are achieved 20 Based on the evidence relied on by APN Outdoor and the matters set out above, I was satisfied that the Scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting of members, the Court would be likely to approve it on the hearing of an unopposed application.

particular matters brought to the court's attention 21 APN Outdoor brought the following matters to the Court's attention in relation to the Scheme. As set out below, I accepted that these matters were not of concern to the Court.

Verification of the Scheme Booklet 22 In his affidavit affirmed on 7 September 2018 David William Watkins, the company secretary of APN Outdoor and a member of the due diligence committee established for the purpose of overseeing the due diligence and verification processes for information in the Scheme Booklet, set out the verification process undertaken by APN Outdoor in relation to the Scheme Booklet among other things. Based on Mr Watkins' evidence I was satisfied that the process was detailed and robust. In summary it required the persons involved in the process to: (1) confirm that, to the best of their knowledge and belief, each material statement allocated to them for verification was accurate, contained no material admissions and was not misleading or deceptive or likely to mislead or deceive; and (2) sign a verification certificate in relation to those statements allocated to them for review. 23 The board of APN Outdoor was also provided with various drafts of the Scheme for review. On 7 September 2018, the APN Outdoor board resolved to approve the Scheme Booklet and the directors confirmed that they did not believe that any information contained in the Scheme Booklet for which APN Outdoor is responsible, being all information other than the JCDecaux information, is misleading or deceptive in any material respect or contains any material omission. 24 A similarly robust and thorough process was undertaken by JCDecaux in relation to the information for which it was responsible in the Scheme Booklet. David Bourg, the chief financial and administrative officer of JCDecaux, affirmed an affidavit on 6 September 2018 in which he described the verification process undertaken by JCDecaux in relation to the information pertaining to it and the Acquirer included in the Scheme Booklet. JCDecaux undertook a similar process to that undertaken by APN Outdoor to verify that material. 25 Based on his own knowledge, his involvement in the verification process and his review of relevant material, Mr Bourg was satisfied that the final form of the JCDecaux information approved for inclusion in the Scheme Booklet is not misleading or deceptive in any material respect and does not contain any material omission. 26 In addition: (1) the directors of the Acquirer resolved that each of them had read and understood the JCDecaux information included in the Scheme Booklet and satisfied themselves, to the best of their knowledge and belief, that each statement included in that information is not misleading or deceptive and does not contain any material omission; and (2) pursuant to a resolution of the management board of JCDecaux authorising each of Mr Bourg and Jean-Francois Decaux to do all things necessary or desirable to give effect to the Scheme, Messrs Bourg and Decaux signed a management certificate confirming, among other things, that they had read and understood the JCDecaux information included in the Scheme Booklet and satisfied themselves, to the best of their knowledge and belief, that each statement in the JCDecaux information is not misleading or deceptive and does not contain any material omission.

Performance risk 27 As submitted by APN Outdoor, on occasion courts have considered the extent to which a bidder will comply with its primary obligation to pay the scheme consideration to scheme members. 28 In Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 (APN News & Media) at [23] Lindgren J observed that: A concern raised in previous scheme of arrangement applications in this court is that shareholders may be left in a position, once a scheme has become effective, where their shares have been transferred but where there is a delay in the provision of the scheme consideration and where their only remedy is to sue on the deed poll: see Re KAZ Group Ltd [2004] FCA 738 at [4]-[5]; Re Tempo Services Ltd (2005) 53 ACSR 523; [2005] FCA 410 at [5]-[6]; Re SFE Corporation Ltd (2006) 59 ACSR 82; [2006] FCA 670 at [4]; and Re Brambles Industries Ltd (2006) 59 ACSR 501; [2006] FCA 1273 at [9]. Such "performance risk" has been addressed here by requiring that the scheme consideration be paid to APN before 8 am on the implementation date to be held by it in trust for the purpose of being paid, free of deductions, to the scheme participants before they are divested of their shares in APN later on the implementation date. This is provided for in the deed poll. 29 I was satisfied that the issue of performance risk does not arise in the present case. 30 Pursuant to cl 5.1 of the Scheme, the Scheme Consideration must be paid by JCDexaux into a trust account by no later than the business day before the Implementation Date as defined in the Scheme. APN Outdoor is then required to make or procure the payment of the relevant funds in that account to the Scheme Shareholders. Pursuant to cl 4.2(a) of the Scheme, the Scheme Shares will not be transferred to the Acquirer until the funds have been received by APN Outdoor. 31 Notwithstanding that, JCDecaux and the Acquirer have validly executed a deed poll in favour of each Scheme Shareholder and in doing so have undertaken to meet the payment obligations under the Scheme.

Exclusivity 32 The SID contains the following exclusivity provisions: (1) cl 11.1 contains "no shop" and "no talk" provisions. In summary it provides that during the exclusivity period, the period from the date of the SID until the earlier of its termination, the End Date and the Effective Date (as defined in the SID), APN Outdoor must not solicit, invite, encourage or initiate any inquiry from any person which could lead to a competing proposal or participate in any negotiations or discussions which would reasonably be expected to lead to the making of an actual, proposed or potential competing proposal. (2) cl 11.3 obliges APN Outdoor to notify JCDecaux of any potential third party "Competing Proposal", as that term is defined in the SID; and (3) cl 11.4 confers on JCDecaux a matching right in respect of a Competing proposal. 33 Clause 11.2 of the SID is a fiduciary carve out to the "no talk" restriction for action that would likely be inconsistent with the fiduciary or statutory duties owed by the APN Outdoor directors. 34 In Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9] Santow J held that exclusivity arrangements should be: (1) for no more than a reasonable period capable of precise ascertainment; framed so that they are subject to the overriding obligation not to breach directors' fiduciary duties or be otherwise unlawful; and of adequate prominence in the explanatory memorandum sent to the shareholders. 35 In this case those requirements were satisfied because first, the exclusivity period is for a clearly defined period and will last for no longer than approximately six months and five days from the date of the SID, unless a later date is agreed by the parties; secondly, there is fiduciary carve out; and thirdly, the exclusivity provisions have been given sufficient prominence in the Scheme Booklet.

Reimbursement fee 36 Clause 12.2 of the SID provides that a reimbursement fee of $11.3 million is payable by APN Outdoor to JCDecaux depending on the circumstances of termination of the Scheme. But the reimbursement fee is not payable if the Scheme does not proceed as a result of APN Outdoor shareholders not voting in its favour. 37 In APN News & Media at [43] Lindgren J observed the following in relation to break fees, also known as reimbursement fees: Provisions for the payment of break fees are not uncommon in agreements for schemes of arrangements and in merger and takeover agreements, both in Australia and overseas. Such provisions have not been an obstacle to the making of orders under s 411(1) of the Act for the convening of meetings. In Re SFE Corporation Ltd [2006] FCA 670 at [6]-[7], Gyles J said that he would be dissuaded from making an order by a break fee only if the amount was of such magnitude that it could influence voting or if there were some other unusual circumstances. 38 In the present case I was satisfied that the reimbursement fee was not excessive and would not operate in a way that would influence voting by members participating in the Scheme for following reasons: first, as I have already observed the reimbursement fee is not payable if the Scheme Shareholders do not approve the Scheme at the meeting. Thus its existence can have no influence on how they vote at the meeting: see Adelaide Bank Limited, in the matter of Adelaide Bank Limited ACN 061 461 550 [2007] FCA 1582 at [31] (per Lander J). secondly, the quantum of the fee, representing 1.01% of equity value of APN Outdoor immediately prior to the announcement of the transaction on 26 June 2018, is consistent with the Australian Takeovers Panel's Guidance Note 7, Lock-up devices (4th issue, 2010) at [9]; thirdly, the fee is disclosed in the Scheme Booklet; and fourthly, Mr Watkins gives evidence that the reimbursement fee (and the exclusivity provisions discussed at [32]-[35] above) were agreed as a result of commercial negotiations between APN Outdoor and JCDecaux which involved numerous conferences in relation to, and amendments of, draft versions of the SID. Mr Watkins was closely involved in those negotiations on behalf of APN Outdoor. Mr Watkins believed that it was necessary for APN Outdoor to agree to those provisions in order to secure JCDecaux's agreement to the transaction.

Deemed Warranty 39 Clause 8.2(b) of the Scheme provides that each Scheme Shareholder is taken to have warranted to APN Outdoor and the Acquirer that all of their shares are fully paid and free from all mortgages, charges, liens, encumbrances, pledges, security interest and third party interests. Clauses in these terms are permissible: see Re APN News & Media at [62]. 40 The existence of the deemed warranty has been adequately disclosed in the Scheme Booklet.

Special dividend 41 The APN Outdoor board intends to declare a fully franked special dividend of $0.30 per Scheme Share which, subject to the Scheme becoming effective, will be paid on the special dividend payment date, currently scheduled for 29 October 2018 (Special Dividend). 42 According to Mr Watkins, if the special dividend is paid by APN Outdoor to Scheme Shareholders who are registered as such on the Special Dividend record date, currently scheduled for 22 October 2018, the Scheme Consideration paid to Scheme Shareholders will be reduced by the cash amount of the Special Dividend. Accordingly, Scheme Shareholders who are registered as such on both the Special Dividend record date and the Scheme record date will receive a total cash consideration of $6.70 per Scheme Share that they hold, comprising the Scheme Consideration and the Special Dividend, if declared. 43 Mr Watkins also noted that, depending on the tax status of each Scheme Shareholder, and on the proviso that a favourable class ruling is obtained from the Australian Taxation Office, each Scheme Shareholder will also receive $0.13 per share in franking credits associated with the Special Dividend. 44 As submitted by APN Outdoor I was satisfied that these circumstances are not class creating. Trading of APN Outdoor shares will be suspended on the Effective Date, currently scheduled to be 18 October 2018, such that no new persons will come onto the register between the Special Dividend record date and the Scheme record date. As a result all Scheme Shareholders will be entitled to the Special Dividend, if declared. Thus there will be no relevant distinction between the rights of Scheme Shareholders.

conclusion 45 For those reasons I was satisfied that the orders sought by APN Outdoor should be made and made them accordingly. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.