F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1500 of 2015

IN THE MATTER OF VEDA GROUP LIMITED ABN 26 124 306 958 VEDA GROUP LIMITED ABN 26 124 306 958

JUDGE: YATES J DATE: 17 FEBRUARY 2016 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The plaintiff, Veda Group Limited, seeks an order pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) that it convene a meeting of its members to consider and, if thought fit, agree to, with or without modification, a scheme of arrangement (the scheme). 2 The plaintiff is an Australian public company limited by shares. It is admitted to the Official List of ASX Limited (ASX) and its ordinary shares are quoted for trading on the stock market conducted by ASX. The plaintiff carries on the business of supplying data based business intelligence services in Australia and internationally. 3 Equifax Inc. (Equifax) is a United States company limited by shares. It was incorporated under the laws of the State of Georgia. Its headquarters are in Atlanta, Georgia. It is listed on the New York Stock Exchange. Equifax and its subsidiaries (together, the Equifax Group) are leading global providers of information solutions, employment and income verification and human resources business process out-sourcing services. As at 8 December 2015, no company in the Equifax Group held an interest in, or exercised any voting power over, shares in the plaintiff.

The scheme 4 On 6 October 2015, the plaintiff announced to the ASX that it had received a proposal from Equifax to acquire all of its ordinary shares by way of a scheme of arrangement. On 22 November 2015, the plaintiff and Equifax entered into a Scheme Implementation Deed in relation to that proposal. 5 Under clause 2.2 of the Scheme Implementation Deed Equifax has the right to nominate one of its subsidiaries to acquire the scheme shares by giving certain written notice. On 25 November 2015, Equifax nominated Equifax Australia Pty Limited (Equifax Australia) to acquire the scheme shares. Equifax Australia is an unlisted, wholly-owned subsidiary of Equifax, registered in Australia. 6 As at 23 November 2015, the plaintiff had 846,425,729 ordinary shares on issue. If the scheme is approved and becomes effective, the scheme shareholders will receive $2.825 in cash for each share held in the plaintiff. 7 The scheme has no unusual features. However, I note the following matters. 8 First, clause 8.2(b) of the scheme provides that each scheme shareholder will be taken to have warranted to Equifax and Equifax Australia that that shareholder's scheme shares will, at the date of transfer, be fully paid and free from all mortgages, charges, liens, encumbrances, pledges, security interests and interests of third parties. The provisions of the deemed warranty have been drawn to the attention of members in the scheme booklet. I am satisfied that sufficient disclosure has been made: Talent2 International Limited, in the matter of Talent2 International Limited [2012] FCA 771 (Talent2) at [16]; Atlassian Corporation Pty Limited, in the matter of Atlassian Corporation Pty Limited [2013] FCA 1451 at [36]. 9 Secondly, clause 8.3(a) of the scheme provides that, to the extent permitted by law, the scheme shares will be transferred to Equifax Australia free from all mortgages, charges, liens, encumbrances, pledges, security interests and interests of third parties. Clauses in this form have been found to be acceptable in other schemes of arrangement: see, for example, the discussion in Investa Properties Limited, in the matter of Investa Properties Limited (2007) 25 ACLC 1,186; [2007] FCA 1104 at [22]-[30].

Exclusivity 10 Clause 11 of the Scheme Implementation Deed is an exclusivity provision which, in summary, includes: (a) a provision requiring the plaintiff to cease any discussions or negotiations in or in relation to a Competing Proposal (as defined); (b) a "no shop" restriction; (c) a "no talk" restriction; (d) a provision requiring the plaintiff to notify Equifax if it is approached by any person in relation to an actual or potential Competing Proposal; and (e) a "matching right" requiring the plaintiff to provide Equifax, after any notification of such an approach, the right to provide a matching or superior proposal. 11 The exclusivity provision is for a period from the date of the Scheme Implementation Deed (22 November 2015) until the earlier of the Scheme Implementation Deed's termination date, 31 March 2016 (or such other later date as agreed by Equifax and the plaintiff) or the Implementation Date after the scheme becomes effective. These dates are capable of precise ascertainment. I am satisfied that the period is reasonable in the circumstances. This is a reasonable period and well within the periods that one customarily sees with schemes of this kind: see the discussion in Talent2 at [41]. 12 The "no talk" restriction is subject to a "fiduciary carve-out" in standard terms: clause 11.2(a). 13 The exclusivity provision has been sufficiently drawn to the attention of the members in section 12.4(e) of the scheme booklet: see Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9].

Reimbursement fee 14 Clause 12 of the Scheme Implementation Deed provides that the plaintiff must pay Equifax an amount of $25,080,438.67 (excluding GST) as a reimbursement fee in certain circumstances. Payment of the reimbursement fee is not triggered by members failing to approve the scheme. It should not, therefore, act as a disincentive to members in respect of their consideration of the scheme: Adelaide Bank Limited, in the matter of Adelaide Bank Limited ACN 061 461 550 [2007] FCA 1582 at [31]. The reimbursement fee is not payable if the scheme becomes effective. It must be refunded if it has already been paid before that time. 15 The reimbursement fee represents approximately 1% of the total equity value of the plaintiff (on a fully diluted basis). The amount of the fee is consistent with Takeovers Panel, Lock-up devices, GN 7, 11 February 2010. The provision for the payment of break fees of this magnitude is not uncommon for schemes of this kind: Mosaic Oil NL, in the matter of Mosaic Oil NL [2010] FCA 985 at [19]. 16 The amount of the reimbursement fee was negotiated on the following basis: (a) the plaintiff's board considered that the scheme will provide benefits to scheme shareholders and that it was appropriate to agree to the reimbursement fee in order to secure the opportunity for members to vote on the scheme; (b) the plaintiff acknowledged that if the scheme is not implemented, Equifax will incur significant costs in connection with the scheme, which will include reasonable opportunity costs if the scheme is not implemented; and (c) Equifax requested the reimbursement fee, without which it would not have entered into the Scheme Implementation Deed. 17 There is evidence that the provisions requiring payment of the reimbursement fee were inserted in the Scheme Implementation Deed as the result of normal commercial negotiations between the plaintiff and Equifax.

Employee loans and executive arrangements 18 The plaintiff's shares were first quoted on the ASX on 5 December 2013 following an initial public offering (IPO). Prior to the IPO, certain of the plaintiff's senior executives and employees had participated in an incentive scheme for the issue of management performance shares (MPS). As part of the IPO, these executives and employees paid a "reclassification amount" to reclassify their MPS into ordinary shares. In the case of certain executives, the reclassification amount was funded by a full recourse loan advanced by Veda Advantage (Australia) Pty Limited, one of the plaintiff's subsidiaries. 19 Employee loans were also made by the plaintiff to certain executives to fund a portion of the purchase price for ordinary shares acquired by those executives under a program initiated in 2009. 20 If the scheme becomes effective, all outstanding amounts under these loans will be paid by the relevant executives. 21 The plaintiff also currently has in place a number of incentive arrangements relating to options to acquire or subscribe for the plaintiff's shares and certain Deferred Share Rights (DSRs). As at 8 December 2015, these incentive arrangements covered a total of 41,377,410 unquoted securities which are capable of being converted into 41,377,410 shares. 22 In relation to some of the options, the optionholders have entered into arrangements that, if the scheme becomes effective, they will sell their options to Equifax. The consideration for the sale will be the difference between the scheme consideration and the relevant "strike price" for the option. 23 Certain other options, being options granted under the plaintiff's Executive Incentive Plan adopted on 28 July 2014 (the EIP), will be cancelled, in consideration for which the plaintiff will pay the optionholders the difference between the exercise price for each option and the scheme consideration, funded by an amount provided to the plaintiff by Equifax. 24 In respect of the DSRs, which were also issued under the EIP, ordinary shares in the plaintiff will be transferred to the holders of DSRs in respect of all existing DSRs and these shares will, if the scheme becomes effective, be acquired by Equifax Australia under the scheme.

The position of directors 25 The plaintiff's directors unanimously recommend that members vote in favour of the scheme. They have declared that they intend to vote all the shares held or controlled by them in favour of the resolution approving the scheme, in the absence of a superior proposal.

Independent expert 26 The plaintiff has engaged Grant Samuel & Associates Pty Limited (Grant Samuel) to provide an independent expert's report expressing an opinion as to whether the proposed acquisition is fair and reasonable and in the best interests of the plaintiff's members. Jaye Louise Gardner, a director of Grant Samuel, has had overall responsibility for the preparation of this report, together with her colleague Atagun Bensan. A copy of the report will be included in the scheme booklet. Ms Gardner has deposed that the opinions expressed in the report are opinions that she holds and that she intends to sign a copy of the report in the form in which it has been placed before the Court. 27 The report expresses the opinion that the proposal is fair and reasonable and, therefore, in the best interests of the members, in the absence of a superior proposal. 28 Grant Samuel has estimated that the full underlying value of the plaintiff to be in the range of $2.65 to $2.88 per share. The scheme consideration of $2.825 per share falls within the upper part of this range. This consideration represents a substantial premium over the plaintiff's share price prior to the announcement to the ASX of Equifax's proposal.

chairperson 29 Helen Marion Nugent, a director and Chairman of the plaintiff, has consented to act as chairperson at the meeting. Peter Shergold, a director of the plaintiff, has agreed to act as chairperson of the meeting if Dr Nugent is unable to do so. Dr Nugent and Dr Shergold have each made affidavits as required by r 3.2 of the Federal Court (Corporations) Rules 2000 (the Corporations Rules).

deed poll 30 The obligations of Equifax and Equifax Australia under the scheme are supported by a deed poll given in favour of the scheme shareholders. The deed poll has been executed by each company. An opinion has been obtained from King & Spalding LLP (King & Spalding), a firm of attorneys practising in Atlanta, Georgia, as to the execution of the deed poll under Georgia law by Equifax and the enforceability of the deed poll against Equifax under Georgia law. 31 King & Spalding have expressed the opinion that Equifax has the corporate power and authority to execute, deliver and perform its obligations under the deed poll, and that it has been duly executed and delivered by the company. This opinion has been sought in light of certain observations made by Farrell J in Simavita Holdings Limited, in the matter of Simavita Holding Limited [2013] FCA 1274 at [43]-[44]. 32 Although the opinion from King & Spalding also addresses the question of whether proceedings arising out of or in connection with the deed poll can be brought against Equifax in Georgia, Senior Counsel questioned the need for such an opinion in circumstances where, as here, the parties bound by the relevant covenants have, by the deed poll, expressed their agreement to irrevocably submit to the exclusive jurisdiction of courts exercising jurisdiction in New South Wales and courts of appeal from them; have irrevocably waived any objection to venue on the basis of a plea of forum non conveniens; and have agreed that the deed poll will be governed by the law in force in New South Wales. 33 In my view, where the parties have agreed to submit to the exclusive jurisdiction of an Australian court or courts and have agreed that domestic law will apply as the proper law of the contract in proceedings arising out of, or in connection with, the deed poll, it is not necessary for the plaintiff to separately address the question of whether similar proceedings can be brought in another forum.

Verification 34 There is evidence before me that the statements of fact made in the scheme booklet have undergone a comprehensive verification process.

Dispatch of the scheme booklet 35 It is proposed that the scheme booklet, which includes the explanatory statement for the scheme required by s 412(1) of the Act, will be sent by email to those members of the plaintiff who have nominated that they wish to receive shareholder communications, including notices of meeting and proxy forms, electronically by email. As at 3 December 2015, approximately 56% of the plaintiff's members had nominated that they wished to receive shareholder communications by that means. 36 Link Market Services Limited (Link) is responsible for maintaining the plaintiff's register of members. It is Link's practice that if a "bounce back" message is received from a member indicating that the email has not been successfully delivered to the member's nominated email address, a hardcopy of the communication will be sent by post to that member's registered postal address. 37 It is proposed that a copy of the scheme booklet will be sent by ordinary prepaid post to members who have not elected to receive shareholder communications by email and to those members who have been given notice of the scheme meeting by email but in respect of whom a bounce back message has been received. In the case of members with a registered address outside Australia, the scheme booklet will be sent by air mail.

ASIC 38 Draft copies of the scheme booklet have been lodged with the Australian Securities and Investments Commission (ASIC). Notice of the hearing of the present application has been given to ASIC in accordance with s 411(2)(a) of the Act. ASIC has signified that it has had a reasonable opportunity to examine the terms of the proposed scheme and the draft explanatory statement. It has signified that it does not wish to make submissions at the present time in relation to the proposed scheme or the draft explanatory statement. In these circumstances, I am satisfied that the requirements of s 411(2)(b) of the Act have been satisfied.

consideration 39 I am satisfied that the plaintiff is a Part 5.1 body and that the scheme of arrangement is an "arrangement" for the purposes of s 411(1) of the Act. 40 I am satisfied that the scheme is of such a nature and cast in such terms that, if it achieves the relevant statutory majorities, it is likely to be approved in an uncontested application: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72; Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [8]-[10]; Centrebet International Limited, in the matter of Centrebet International Limited [2011] FCA 870 at [29]. 41 I am satisfied that the formal requirements that are preliminary to the Court convening a meeting under s 411(1) of the Act have been satisfied.

Disposition 42 Orders, substantially as sought, should be made. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.