Consolidated Media Holdings Limited, in the matter of Consolidated Media... [2012] FCA 1186 | Case summary

REASONS FOR JUDGMENT 1 By originating application filed on 10 September 2012, the plaintiff, Consolidated Media Holdings Limited (CMH), applies for an order convening a meeting of its shareholders for the purpose of considering a scheme of arrangement between it and its shareholders. The application is made under s 411(1) of the Corporations Act 2001 (Cth) (the Act). CMH is a public company listed on the Australian Securities Exchange (ASX). It is an investment holding company. Its investments consist of a 50 per cent interest in Fox Sports, through which it holds a 25 per cent interest in Foxtel. It also has a 12.1 per cent interest in SEEKAsia Limited. 2 Under the proposed scheme, all of the issued ordinary shares in CMH will be transferred to News Pay TV Financing Limited (News). The consideration for the transfer of shares will be $3.45 in cash for each share of CMH. News is a 100 per cent owned subsidiary of News Corporation, and the cash consideration of approximately $1.94 billion will be provided by News Corporation and News Limited, which is a wholly owned subsidiary of News Corporation. The effect of the scheme, if implemented, is that CMH will become a wholly owned subsidiary of News and its quotation by ASX will be ended. 3 On 7 September 2012, CMH, News and News Limited entered into a scheme implementation deed, by which they agreed to use their best endeavours to implement the proposed scheme, subject to the satisfaction or waiver of various conditions. One of the conditions is the approval of the scheme by the Court under s 411. 4 The Court will not ordinarily summon a meeting of shareholders 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 shareholders, the Court would be likely to approve the scheme 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 as being of benefit to members. Ultimately, the question, of course, is for the shareholders themselves. 5 Clause 5 of the proposed scheme deals with its implementation. If the conditions precedent set out in clause 3 of the scheme are satisfied, CMH will be obliged to lodge with the Australian Securities Investments Commission (the Commission), in accordance with s 411(10) of the Act, an office copy of the order of the Court approving the scheme. On the implementation date, as defined, all the shares in CMH held by participants in the scheme will be transferred to News without the need for any further act by any scheme participant. That will be effected by CMH delivering to News a duly completed share scheme transfer, executed on behalf of all of the scheme participants, and by News duly executing the share scheme transfer and delivering it to CMH for registration. 6 CMH will, as soon as practicable following receipt of the duly executed share transfer from News, enter the name and address of News in the register in respect of the CMH shares held by scheme participants. Also on the implementation date, each scheme participant will be entitled to receive the scheme consideration in respect of each CMH share within five business days, in accordance with the provisions of clause 6 of the scheme. 7 Under clause 6.1, within five business days after the implementation date, CMH, as trustee for the scheme participants and as agent for and on behalf of News, must pay to each scheme participant an amount equal to the scheme consideration, as consideration for each CMH share transferred to News on the implementation date by that scheme participant. 8 Under clause 6.2, the obligation of News to pay the scheme consideration under clause 5 is deemed to be satisfied if News, before 11am on the implementation date, deposits or procures the deposit in cleared funds, into an account nominated by CMH, the aggregate scheme consideration payable to all scheme participants. That amount is to be held on trust by CMH for the scheme participants and for the purpose of CMH paying the scheme consideration to each scheme participant. 9 Under clause 7 of the proposed scheme, dealings in CMH shares will only be recognised if, in the case of dealings of the type to be effected using the Clearing House Electronic Subregister System operated by ASX Settlement Pty Limited, the transferee is registered in the register as the holder of the relevant CMH shares on or by the scheme record date, as defined. In all other cases, transfers or transmission applications in respect of dealings must be received at the share registry before 5pm on the scheme record date. CMH will not accept for registration, or recognise for the purpose of establishing who the scheme participants are, any transmission application or transfer in respect of CMH shares received after those times on the scheme record date. 10 Under clause 7.6, CMH must apply to ASX for suspension of trading in CMH shares with effect from the close of trading on the effective date, as defined. On a date after the implementation date to be determined by News, CMH will apply for termination of the official quotation on ASX of CMH shares, and must apply to have itself removed from the official list of ASX. 11 Clause 8 contains a warranty by scheme participants to the effect that all CMH shares held by the scheme participant will, at the date of transfer of them to News, be fully paid and free from any mortgage, charge, lien, encumbrance, pledge, security interest or other interest of third parties, and that they have full power and capacity to sell and to transfer their CMH shares. Under clause 8.5, all CMH shares held by scheme participants, which are transferred to News under the scheme, will, as of the date of transfer, be free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind. By clause 8.7, News is appointed as sole proxy to effect the transfer of shares in CMH to News. 12 The obligations of News under the scheme are the subject of a deed poll executed by News and News Limited in favour of all shareholders in CMH. The deed poll was executed pursuant to a provision of the scheme implementation deed of 7 September 2012. 13 The scheme implementation deed provides for exclusivity and for the payment of a break fee in terms which are not uncommon in transactions of the nature presently under consideration. Clause 15 of the scheme implementation deed provides for restrictions that are generally described as "no-shop", "no-talk" and "no-due diligence" restrictions, as well as a notification and matching right restriction. Such restrictions will not be an impediment to the convening of a meeting and ultimate approval of the scheme, provided that the period of exclusivity is no more than is reasonable and is capable of precise ascertainment. 14 To the extent that there is a prohibition on dealing with unsolicited or alternative proposals, it is appropriate that there be what is described as a "fiduciary carve-out" to ensure that the directors are not in breach of a fiduciary duty by agreeing to the restriction. Such restrictions should be drawn to the attention of the shareholders with appropriate prominence in the scheme booklet. 15 The exclusivity provisions of the scheme implementation deed are capable of precise ascertainment. The exclusivity period lasts from the date of execution of the scheme implementation deed until its termination, which is 21 December 2012, or such later date as may be agreed. There is no reason to doubt that that is a reasonable period. The no-talk, no-due diligence and notification and matching right restrictions are subject to carve-out provisions in relation to fiduciary and statutory duties. I have considered the draft scheme booklet and am satisfied that the matters are given sufficient prominence in the scheme booklet to a shareholder who takes the trouble to read it. 16 The scheme implementation deed also provides for a break fee of $19 million payable by CMH to News. The provision is disclosed in the proposed scheme booklet. The break fee is not payable merely because shareholders reject the scheme. The break free was agreed to as a result of normal commercial negotiations between CMH and News, which required the break fee. CMH directors were satisfied that the final terms of the break fee were acceptable. They consider that the break fee is appropriate to compensate News for the reasonable external costs and opportunity costs in connection with the scheme. The break fee is just under 1 per cent of the total equity value of CMH and is in line with the guidelines published by the Takeovers Panel. 17 The break fee was agreed by CMH some two months after News Limited's indicative proposal was announced to ASX on 20 June 2012. CMH would not have been bound to pay a break fee had a superior proposal emerged during the period from 20 June 2012 to 7 September 2012. 18 I have referred to the warranty given by shareholders under the scheme and to the no encumbrance provision. The terms of those provisions in the scheme are adequately described in the scheme booklet. 19 Two of the directors of CMH have declined to make a recommendation to shareholders as to whether they should vote in favour of the proposal. Those two directors, Messrs Gammell and Stokes, were nominated to the board by Seven Group Holdings Limited, which has 25.3 per cent of the shares in CMH. All of the other directors of CMH unanimously recommend that the shareholders vote in favour of the proposed scheme. 20 The directors of CMH appointed KPMG Corporate Finance (KPMG) to assess the scheme. KPMG have prepared a detailed report on the merits of the scheme, which has been included in the proposed scheme booklet. The report indicates that, in the opinion of KPMG, the scheme is fair and reasonable and is in the best interests of the shareholders in the absence of a superior proposal. 21 The assessment that the scheme is fair is based on comparing the consideration payable under the scheme to the assessed value of shares made by KPMG. KPMG adopted a sum of the parts approach in valuing CMH because CMH is an investment holding company. That approach involved valuing each of CMH's investments using an appropriate valuation methodology. The value of CMH was the sum of those values, less the capitalised value of ongoing corporate costs required to maintain the investment structure, plus the value of surplus assets. Under that approach, KPMG assessed the control value of the CMH share to be in the range of $3.22 to $3.56 per share. KPMG considered that if the scheme is fair, it is reasonable. KPMG concluded that the scheme is reasonable, simply because it is fair. 22 KPMG have also considered a range of factors that, in their opinion, support a reasonableness conclusion in isolation of their fairness opinion. The principal factors that underpinned their conclusion of reasonableness relate to the fact that the scheme represents the most superior option currently available. It allows the shareholders to realise their investment in CMH at a premium over share prices prior to the scheme being announced. It is likely that the CMH share price would fall in the event that the scheme is not implemented, and the scheme provides certainty of outcome. KPMG conclude that the scheme is in the best interests of shareholders in the absence of any other proposal. The directors are of the view that any other proposal is unlikely. 23 In addition to the consideration payable under the scheme, a fully-franked final dividend of six cents per share has been announced by the CMH directors. That will be paid on 5 October 2012. 24 Certain of the shareholders of CMH have approved notification by electronic means. It is appropriate that they be notified of the proposed meeting of shareholders to be convened by the Court by electronic means. The meeting is proposed to be held in Perth on 31 October 2012. CMH is, in fact, incorporated in Western Australia but, in any event, it appears that it has been customary for annual meetings of the members of CMH to be conducted in different capital cities. 25 The Commission has been provided with a copy of the proposed scheme booklet and has indicated to the solicitors for CMH that it does not propose to attend to make any submission in relation to the application to convene the meeting of shareholders. In all of the circumstances, I consider that it is appropriate to accede to the present application. I certify that the preceding twenty five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate: Dated: 6 November 2012 Annexure A Dear Shareholder Thank you for electing to receive notices from Consolidated Media Holdings Limited (CMH) by email. As announced by CMH on 24 September 2012, the Federal Court of Australia has ordered a meeting of CMH shareholders (the Scheme Meeting) to be convened to consider and vote on the proposal under which News Pay TV Financing Pty Limited (News), a 100% owned subsidiary of News Corporation, will acquire all of the shares in CMH for $3.45 per CMH share by way of scheme of arrangement (the Scheme). CMH is pleased to send to you a Notice of Scheme Meeting in relation to the Scheme and Scheme Booklet. The Scheme Meeting will be held at 9:30am (Perth time) on Wednesday, 31 October 2012 at Botanical Four, Crown Perth Convention Centre, Crown Perth, Great Eastern Highway, Perth, Western Australia. To view the the Scheme Booklet, which contains the Notice of Scheme Meeting as Attachment 4, please click on the following link: http://www.cmh.com.au/CMH/About-CMH/CMH-Scheme Please note that if you would like to appoint a proxy online you can do so by copying and pasting the below encrypted link into your web browser: https://www.investorvote.com.au/proxylogin.aspx?cn=control&p=test In order for your proxy to be valid, please make sure you appoint your proxy by no later than 9:30am (Perth time) on Monday, 29 October 2012. Should you have any queries in relation to your CMH shareholding, please contact our Share Registry via email at: web.queries@computershare.com.au. For further information in relation to the Scheme Meeting, or the Scheme generally, please call the CMH transaction information line on 1300 628 017 (within Australia) or + 61 3 9415 4196 (outside Australia) or visit the CMH website www.cmh.com.au In addition, if you would like to be sent a hard copy of the Scheme Booklet, Notice of Scheme Meeting or proxy form please call the CMH transaction information line. Yours sincerely Louise Lane Company Secretary Unsubscribe: If you no longer want to receive messages from us, visit http://www.investorcentre.com/unsubscribe enter your holding details and then update your communication elections. Please do not reply directly to this email, as it is an unattended mailbox. Annexure B NOTICE OF HEARING TO APPROVE ARRANGEMENT TO all the creditors and members of Consolidated Media Holdings Limited ABN 52 009 071 167 ("CMH") TAKE NOTICE THAT at 2:15 pm on 2 November 2012 the Federal Court of Australia at Commonwealth Law Courts Building, Queens Square, Sydney, New South Wales will hear an application by CMH seeking the approval of an arrangement between CMH and its members as proposed by a resolution to be considered by the meeting of such members to be held at Botanical Four, Crown Perth Convention Centre, Crown Perth, Great Eastern Highway, Perth, Western Australia at 9.30am (Perth time) on 31 October 2012. If you wish to oppose the approval of the arrangement, you must file and serve on CMH a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on CMH at least 1 day before the date fixed for the hearing of the application. The address for service of CMH is c/o Ashurst Australia, Level 35, 225 George Street, Sydney, NSW 2000 (Attention: Sonia Tame), Facsimile: (02) 9258 6999, Email: sonia.tame@ashurst.com

Louise Lane Company Secretary Consolidated Media Holdings Limited

Consolidated Media Holdings Limited, in the matter of Consolidated Media Holdings Limited [2012] FCA 1186

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