Cathay Pacific Airways Limited v Assistant Treasurer and Minister for Competition Policy and Consumer Affairs [2010] FCA 510 - [2018] FCA 510 - FCA 2018 case summary — Zoe

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Cathay Pacific Airways Limited v Assistant Treasurer and Minister for Competition Policy and Consumer Affairs [2010] FCA 510

[2018] FCA 510

Federal Court of Australia|2018-04-04|Before: Mr J, Markovic J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2018-04-04

Before

Mr J, Markovic J

Catchwords

CORPORATIONS - scheme of arrangement - application for approval of scheme of arrangement - application allowed.

Source

Original judgment source is linked above.

Catchwords

CORPORATIONS - scheme of arrangement - application for approval of scheme of arrangement - application allowed.

Judgment (19 paragraphs)

[1]

Pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Act): (a) the plaintiff convene a meeting (Scheme Meeting) of the holders of ordinary shares in the plaintiff (Scheme Shareholders), for the purpose of considering and if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (Scheme) between the plaintiff and the Scheme Shareholders, the terms of which scheme of arrangement are set out in Annexure C of the document which has been tendered and marked Exhibit 1 (Scheme Booklet); (b) the Scheme Meeting be held on 18 May 2018 at Tower One - International Towers, Level 46, 100 Barangaroo Avenue, Sydney in the state of New South Wales commencing at 10.00 am; (c) the chairperson of the Scheme Meeting be Peter Bush, or failing him, David Gibson; (d) the chairperson appointed to the Scheme Meeting has the power to adjourn or postpone the Scheme Meeting in his absolute discretion for such time and to such date as he considers appropriate; (e) at the Scheme Meeting, the resolution to approve the Scheme be decided by way of a poll; (f) the explanatory statement substantially in the form of the Scheme Booklet be approved for distribution to Scheme Shareholders.
Pursuant to s 1319 of the Act, there be despatched to: (a) each Scheme Shareholder who has nominated an electronic address for the purpose of receiving notices of meeting and proxy forms from the plaintiff, at such address: (i) an email substantially in the form of the document which is Annexure "CH-1" to the affidavit of Chris Healey affirmed on 28 March 2018 including links to the online portal; and (ii) if requested in writing by the Scheme Shareholder: (A) by hand at, or by ordinary pre-paid post or courier to the address of that Scheme Shareholder set out in the register of members of the plaintiff; or (B) in the case of a Scheme Shareholder whose registered address is outside Australia, by airmail or facsimile to the address of that Scheme Shareholder as set out in the register of members of the plaintiff, a copy of the Scheme Booklet, a proxy form and a reply envelope addressed to the plaintiff c/- Link Market Services Limited, and (b) each other Scheme Shareholder: (i) by hand at, or by ordinary pre-paid post or courier to the address of that Scheme Shareholder set out in the register of members of the plaintiff; or (ii) in the case of a Scheme Shareholder whose registered address is outside Australia, by airmail or facsimile to the address of that Scheme Shareholder as set out in the register of members of the plaintiff, a copy of the Scheme Booklet, a proxy form and a reply envelope addressed to the plaintiff c/- Link Market Services Limited.

[6]

Independent expert report 9 Grant Thornton, the independent expert appointed by the directors of Mantra to assess the Scheme, prepared a report. In their report Grant Thornton assessed the fair market value of Mantra shares on a control basis adopting three valuation methodologies: a quoted security price method; the DCF method; and the EBITDA multiple method. On the basis of those methodologies, Grant Thornton valued the shares in Mantra at between $3.86 and $4.53 per share. 10 Grant Thornton concluded that the Scheme is fair and reasonable and thus is in the best interests of Mantra shareholders in the absence of a superior alternative proposal emerging. They reached that conclusion having regard to a number of matters including that: (1) Mantra shareholders will receive a premium for control for their shares under the Scheme which is unlikely to be available to them in the absence of the Scheme or an alternative proposal. In the absence of the Scheme or an alternate transaction, Grant Thornton is of the view that it is likely that Mantra shares will trade at prices below the total cash consideration, at least in the short term; (2) the principal disadvantage of the proposed Scheme for Mantra shareholders is that they will forgo the opportunity to participate in the future potential upside of Mantra and any uplift in the current market conditions. That said, Grant Thornton's valuation assessment based on the net present value of future cash flows reflects the current known growth opportunities which are set out in their report; (3) as at the date of Grant Thornton's report, no superior proposal to the proposed Scheme had emerged; and (4) since the announcement of the proposed Scheme, the share trading prices of Mantra have been substantially in line with the total cash consideration of $3.96 per share which seems to indicate good support from investors for the proposed Scheme, perceived low risk of the Scheme not being implemented and limited expectation for a superior proposal.

[7]

legal framework 11 Section 411(1) of the Act relevantly provides that where an arrangement is proposed between a Pt 5.1 body and its members the Court may, on the application in a summary way of the body, order a meeting of the members of the body to be convened in such manner, and to be held in such place as the Court directs. The Court may also approve the explanatory statement required by s 412(1)(a) of the Act to accompany the notice of the meeting. 12 Section 412(1)(a) provides that where a meeting is convened under s 411, the body must, with every notice convening the meeting, send a statement explaining the effect of the arrangement which must state any material interests of the directors and the effect of the proposed arrangement on those interests insofar as that effect is different from the effect on the like interests of other persons. The statement must also set out such information as is prescribed and any other information that is material to the making of a decision by a member whether or not to agree to the arrangement. 13 Section 411(2) provides that the Court must not make an order pursuant to s 411(1) unless 14 days' notice of the hearing of the application has been given to the Australian Securities and Investments Commission (ASIC) and the Court is satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed arrangement and a draft explanatory statement relating to it and to make submissions to the Court in relation to the proposed arrangement and the draft explanatory statement. 14 The Court would not ordinarily summon a scheme meeting unless the scheme is of such nature and cast in such terms that, if it receives the support of the statutory majority at the scheme meeting, the Court would be likely to approve it on the hearing of an unopposed application. The question for the Court is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed is of benefit to members: see Centrebet International Limited, in the matter of Centrebet International Limited [2011] FCA 870 at [29]; Texon Petroleum Limited, in the matter of Texon Petroleum Limited [2013] FCA 29 (Texon) at [4]. The Court does not need to be satisfied that no better scheme could have been proposed. Ultimately, the question is for the members themselves: Texon at [4]. 15 Given that the application, in effect, proceeds ex parte, it is the duty of the plaintiff to bring to the Court's attention all matters that could be considered relevant to the exercise of its discretion: Permanent Trustee Company (2002) 43 ACSR 601; [2002] NSWSC 1177 at [7]. 16 At the first hearing the following matters need to be established: (1) the plaintiff is a Pt 5.1 body; (2) the proposed scheme is an "arrangement" within the meaning of s 411 of the Act; (3) the explanatory statement will provide proper disclosure to members; (4) the scheme is bona fide and properly proposed; (5) ASIC has had reasonable opportunity to examine the proposed scheme, to make submissions and has had 14 days' notice of the proposed hearing date; and (6) any other procedural requirements have been met, see EcoBiotics Limited, in the matter of EcoBiotics Limited [2017] FCA 643 at [20] and to similar effect Re Orica Ltd [2010] VSC 231 at [7] where Davies J sets out the function of the Court at the first Court hearing and relevantly also notes that the Court should consider whether there may be matters that may make it unlikely that the scheme would be capable of a grant of approval by the Court if, in due course, its approval is sought and so make it futile to put the scheme to shareholders for their vote.

[15]

Exclusivity provisions 30 Clause 11 of the SIA is an exclusivity provision. It includes "no shop and no talk" and "no due diligence" restrictions, a "notification of approaches" provision and a "matching right" provision. 31 In Arthur Yates & Co Limited (2001) 36 ACSR 758; [2001] NSWSC 40 at [9] Santow J observed that an exclusivity clause should satisfy the following concerns: (1) it should be for no more than a reasonable period capable of precise ascertainment; (2) where directed at dealing with a solicited or unsolicited alternative merger proposal, it should be framed so that it is subject to a fiduciary carve-out; and (3) such a provision should be clearly disclosed in the explanatory statement sent to shareholders. 32 In this case: (1) the exclusivity period runs from the date of the SIA, 12 October 2017, until the earliest of the date of its termination, the "End Date" or the effective date of the Scheme. Whilst the exclusivity period is relatively lengthy, as submitted by Mantra, it is reasonable in the circumstances. Significant time was needed to obtain merger clearance from the Australian Competition and Consumer Commission which commenced its public review of the transaction on 27 October 2017 and announced that it would not oppose the proposed acquisition of Mantra by AAPC on 8 March 2018; (2) the "no talk" and "no due diligence" restrictions are subject to the overriding obligation that the Mantra directors not breach their fiduciary or statutory duties. Although the "no shop" restriction is not included in the fiduciary carve-out, this is consistent with authority: see, for example, Hostworks Group Limited ACN 008 010 820, in the matter of Hostworks Group Limited ACN 008 010 820 (2008) 26 ACLC 137; [2008] FCA 64 at [34]. Similarly, the "notification of approaches" and "matching right" provisions are not included in the fiduciary carve-out which is consistent with the approach of courts to require a fiduciary carve-out only in relation to "no talk" provisions: see Re Healthscope Ltd [2010] VSC 367 at [18]-[23]; (3) the exclusivity provisions are disclosed in section 1.14(b) of the Scheme Booklet; (4) the SIA was negotiated between commercial parties represented by experienced legal advisors; and (5) the directors of Mantra believe that, in the absence of a superior proposal emerging, the Scheme is in the best interests of Mantra shareholders and represents an attractive outcome for them.

[17]

Performance risk 37 In my opinion, there are appropriate procedures in place to guard against performance risk. They are that: (1) pursuant to cl 4.5 of the Scheme, the Scheme consideration, of $3.96 per Scheme share, minus the per-share cash amount of the special dividend (Scheme Consideration), must be paid by AAPC into a trust account operated by Mantra as trustee by no later than the business day before the implementation date; (2) subject to the Scheme becoming effective, on the implementation date the following will occur: (c) the Scheme Consideration must be provided by AAPC as set out in (1) above; (d) the Scheme Consideration must be paid by Mantra to each Scheme Shareholder based on the number of Scheme shares held by that Scheme Shareholder as at the Scheme Record Date in the manner contemplated by cl 4.7 of the Scheme; and (e) the Scheme Shares will be transferred to AAPC; (1) immediately following receipt of the transfer form from AAPC, Mantra will enter the name and address of AAPC in the register as the holder of all of the Scheme shares; (2) AAPC has made arrangements to fund the Scheme Consideration. Those arrangements are set out in section 4.6 of the Scheme Booklet which provides that Accor S.A. and AAPC intend to fund the Scheme Consideration using either or both cash and cash equivalent investments on hand or debt facilities. As at the date of the Scheme Booklet, the level of cash which Accor S.A. and AAPC will have on hand at the time of implementation was unknown. However, the Scheme Booklet discloses that Accor S.A. has sufficient debt facilities in place to fund 100% of the Scheme Consideration and provides a summary of those facilities which demonstrates that it has sufficient capacity to meet the total Scheme Consideration; and (3) AAPC has executed a Deed Poll in favour of the Scheme Shareholders by which it covenants to perform all actions attributed to it under the SIA and otherwise comply with the Scheme. A copy of the Deed Poll is included in the Scheme Booklet.

Cathay Pacific Airways Limited v Assistant Treasurer and Minister for Competition Policy and Consumer Affairs [2010] FCA 510

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Judgment (19 paragraphs)

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Cases Cited (11)