Solicitors:
Herbert Smith Freehills (Plaintiff)
Minter Ellison (Acquirer)
File Number(s): 2021/58272
[2]
Nature of the application and affidavit evidence
By Originating Process filed on 1 March 2021, the Plaintiff, WPP AUNZ Ltd ("WPPA") seeks an order under s 411 of the Corporations Act 2001 (Cth) that it convene a meeting of its members (other than "Excluded Shareholders" as defined), for the purposes of considering a proposed scheme of arrangement between WPPA and those members. WPPA is a public company listed on the Australian Securities Exchange ("ASX") which operates an advertising, marketing, media public relations and communications business, and WPP plc ("WPP") currently holds 61.5% of its shares. Broadly, the Excluded Shareholders are WPP and each of its related bodies corporate, and any person who holds WPPA shares on behalf of, or for the benefit of, any member of the WPP Group. If the proposed scheme is agreed to by the relevant shareholders and approved by the Court, all WPPA shares not already owned by Cavendish Square Holding BV ("CSH"), a wholly owned subsidiary of WPP, will be transferred to the acquiring companies and WPPA will become a wholly owned subsidiary of WPP. WPPA also seeks an order under s 1319 of the Act as to the manner in which the scheme meeting is to be convened and an order approving the explanatory statement in relation to the scheme for distribution to scheme participants.
An Independent Board Committee ("WPPA IBC") was established to consider the scheme, to ensure that it was considered independently of WPP and its nominee directors. The members of the WPPA IBC are WPPA's three independent non-executive directors. The WPPA IBC has formed the view that the proposed scheme is in the best interests of the scheme shareholders, and unanimously recommend that they vote in favour of the scheme in the absence of a Superior Proposal (as defined) and subject to the independent expert continuing to conclude that the scheme is in the best interests of the scheme shareholders. PricewaterhouseCoopers Securities Limited ("PwCS") has also prepared an independent expert's report which concludes that the scheme is fair and reasonable and, therefore, is in the best interests of WPPA shareholders. PwCS has assessed the underlying value of a WPPA share to be in the range of $0.62 to $0.80 per WPPA share and the scheme consideration is within PwCS's assessed valuation range for WPPA shares.
Turning now to the affidavit evidence, WPPA relies on the affidavit dated 1 March 2021 of Mr Hastings, a solicitor acting for it in the application. Mr Hastings refers to an announcement made by WPPA to ASX on Christmas Day, 25 December 2020, that it had entered into a Scheme Implementation Deed dated 25 November 2020 ("SID") with WPP and CSH, by which CSH would acquire all of the ordinary shares in WPPA that are not already owned by WPP. The SID provided for scheme participants to receive cash consideration of $0.70 per WPPA share owned by them, less certain adjustments in respect of dividends. Mr Hastings notes that the WPPA IBC had unanimously recommended that scheme participants vote in favour of the scheme conditional on specified matters, and that the nominee directors of WPP and executive director do not make a recommendation in respect of the scheme.
WPPA also relies on the affidavit dated 12 March 2021 of Mr Mactier, who is an independent non-executive director and chairman of WPPA, and consents to act as chair of the proposed scheme meeting. By an affidavit dated 12 March 2021, Ms Anderson, who is also a non-executive director of WPPA, consents to act as chair of the scheme meeting in Mr Mactier's place, if he is unable to do so.
WPPA relies on the affidavit dated 13 March 2021 of its General Counsel and Company Secretary, Ms Gough, which exhibits the then draft of the explanatory statement in relation to the scheme. Ms Gough refers to the current shareholdings and current directors of WPPA, and refers to the announcement made to ASX in relation to the entry into the SID, and to a further announcement concerning a Deed of Amendment and Restatement in respect of the SID, which permitted WPPA to pay increased fully franked ordinary and special dividends, and outlined the total cash payment of $0.70 per WPPA share available to scheme participants who held their shares on specified record dates, made up of the scheme consideration, a fully franked ordinary dividend in respect of the year ended 31 December 2020, and, if WPPA determined, a fully franked special dividend.
Ms Gough also there noted that Mr Monsees, who is the Chief Executive Officer and Managing Director of WPPA, which would become a wholly owned subsidiary of WPP if the scheme became effective, did not consider it appropriate to make a voting recommendation in relation to the scheme and would abstain from voting at the scheme meeting in relation to WPPA shares held or controlled by him. She also referred to the recommendation made by the WPP IBC in respect of the scheme and to the conclusion reached by PwCS in its draft independent expert's report that the scheme was fair and reasonable and in the best interests of scheme participants in the absence of a Superior Proposal (as defined). Ms Gough also addressed conditions precedent to the scheme; the treatment of equity incentives issued to certain of WPPA's executive and employees, including performance rights issued under a share ownership plan and a long-term incentive plan, and options on issue under the long-term incentive plan. Ms Gough also outlined the process which had been adopted for verification of the scheme booklet, which is in customary form, and referred to WPP's and CSH's execution of a deed poll giving undertakings in respect of their obligations in relation to the scheme, including in respect of the scheme consideration. She outlined the manner in which the scheme meeting would be held, by a physical meeting with the option for scheme participants to view a webcast of the meeting remotely.
WPPA also relies on the affidavit dated 12 March 2021 of Mr Powell, an Account Director employed by Computershare Investor Services Pty Ltd ("Computershare"), which provides share registry, vote monitoring and meeting management services, and maintains WPPA's share register. Mr Powell refers to the services that Computershare has been retained to provide in relation to the dispatch of materials relating to the scheme and the provision of a meeting platform by which WPPA shareholders may follow a live webcast of the scheme meeting and submit questions. Mr Powell also outlines the process which will be adopted for dispatch of scheme documents in electronic and hard copy form, and to Computershare's engagement of Lumi Technologies Pty Ltd to provide meeting platform services in respect of the scheme meeting.
By his affidavit dated 13 March 2021, Mr Stewart of PwCS refers to its engagement by WPPA to prepare an independent expert's report expressing an opinion as to whether WPP's and CSH's proposed acquisition of the ordinary shares in WPPA that they do not already own, under the proposed scheme, is fair and reasonable and in the best interests of participating WPPA shareholders. He refers to the report prepared by PwCS under his supervision and indicates that he holds the opinions expressed in that report and has made all inquiries he believes are desirable and appropriate for the purposes of preparing that report.
By his affidavit dated 11 March 2021, Mr Povey, who is the General Counsel of WPP refers to the steps that it took, with the assistance of its Australian solicitors, in respect of the verification of the scheme booklet. I was in turn taken through the scheme booklet (Ex P1) in the course of the hearing. By his affidavit dated 11 March 2021, Mr Ravelli, a legal practitioner in an international firm practising in the Netherlands, gives his opinion as to the enforceability of the Deed Poll executed by CSH, which is a corporation incorporated in the Netherlands. By his affidavit dated 10 March 2021, Mr Hickling, who is a legal practitioner in Jersey, gives his opinion as to the enforceability of the Deed Poll executed by WPP under Jersey law.
By an affidavit dated 14 March 2021, Ms Stone, also a solicitor acting for WPPA, refers to correspondence with the Australian Securities and Investments Commission ("ASIC") in respect of the scheme. By a second affidavit dated 15 March 2021, Ms Stone refers to the receipt of a letter from ASIC dated 15 March 2021, indicating that it did not currently propose to appear or make submissions or intervene or oppose the scheme at the first Court hearing. That letter highlighted an issue that, depending on events, may arise at the second Court hearing as follows:
"ASIC notes that, under the proposed timetable, shareholders of [WPPA] will be asked to vote on the Scheme before [WPPA] has made a determination to declare the Special Dividend. If the Scheme is approved by shareholders and a determination is made to declare the Special Dividend, shareholders will receive an aggregate cash payment of $0.656 per share comprising:
• 0.50 per share in Scheme consideration; and
• 0.156 per share in Special Dividend payment.
If [WPPA] determines not to declare the Special Dividend, shareholders will receive $0.656 per share in Scheme Consideration if the Scheme is approved and implemented.
ASIC notes that the contingent nature of the Special Dividend is disclosed in the draft Explanatory Statement. ASIC understands that there are commercial reasons (namely, taxation consequences for shareholders) for the timing of the Special Dividend determination.
ASIC further understands that, for some shareholders, inclusion of the Special Dividend may have favourable taxation consequences compared to receiving only Scheme Consideration. ASIC is concerned that, for some shareholders, a determination not to declare the Special Dividend may impact the shareholders' vote on the Scheme, were the vote to occur after the determination were made. Should the Scheme be approved by shareholders and should the Special Dividend not be declared, ASIC will consider what impact this may have had on voting on the Scheme.
Having regard to these concerns, ASIC is reserving its position at this time regarding this matter. [WPPA] has agreed to provide ASIC with information regarding the votes cast at the Scheme meeting and [WPPA's] decision regarding declaration of the Special Dividend as soon as that information is available. ASIC understands that [WPPA] has agreed to bring ASIC's concerns to the Court's attention at the hearing on 16 March 2021. [I interpolate that WPPA brought this letter and this matter to the Court's attention in the course of that hearing.]
ASIC notes that the proposed timetable provides for the second Court hearing to occur one day after determination of the Special Dividend. Although ASIC does not seek to alter the proposed timetable at this stage, if considered necessary, ASIC may request the date of the second Court hearing be postponed to provide sufficient time for ASIC, or other interested parties, to decide whether to appear and make submissions at the second Court hearing.
ASIC also reserved the possibility of taking concerns in relation to those matters into account in determining whether to provide a letter of no objection for the purposes of s 411(17)(b) of the Act. These are properly matters for the second hearing, not least because whether they will arise will depend, in part, on whether the special dividend is or is not declared after the scheme meeting and before the second Court hearing.
Applicable principles
I now turn to the applicable principles, and I have drawn on Mr Jackman's helpful outline of submissions in that respect. In fairness to Mr Jackman, the proposed scheme largely does not raise novel issues and Mr Jackman's submissions address matters that are well-known in this context. Mr Jackman submits that the test commonly applied by Australian Courts in deciding whether to convene a scheme meeting or meetings is that summarised by Street J (with whom Hutley and Samuels JJA agreed) in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69:
"The approach taken upon a summons is that the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the creditors' meeting the court would be likely to approve it on the hearing of a petition which is unopposed."
I also summarised those principles in Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]-[27] as follows:
"It is, of course, well-established that the Court will order the convening of a scheme meeting and approve a draft explanatory statement if it is satisfied that the plaintiff is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411 of the Corporations Act; the scheme booklet will provide proper disclosure to members; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions and has had 14 days' notice of the proposed hearing date; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved: Re Staging Connections Group Ltd [2015] FCA 1012 at [19]- [20]; Re Atlas Iron Ltd [2016] FCA 366; (2016) 112 ACSR 554 at [30]; Re Duet Finance Ltd [2017] NSWSC 415 at [15]; Re Villa World Ltd [2019] NSWSC 1207 at [15].
The Court will not ordinarily summon a meeting at the first court hearing unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commissions v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. In Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at [36] and [44] (cited with apparent approval in Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [58]), French J observed that:
"... by granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the court's approval if passed by the necessary majorities, then leave should be given: Re ACM Gold Ltd (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573 (O'Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to "introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage": Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J). ..."
The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court ... That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further."
At the first Court hearing, the Court is not concerned with whether final approval should be given to the scheme but whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate for it to be submitted for shareholders' consideration: Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 at [23]; Re Villa World (2019) 139 ACSR 550; [2019] NSWSC 1207 at [18]. He also submits and I accept that the Court need not be satisfied that no better scheme could have been proposed, and is concerned with whether sensible business people might consider the arrangement proposed is of benefit to members: Re Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18]; Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [22].
[3]
Other aspects of the scheme
Mr Jackman draws attention to several aspects of the scheme, although the common questions of exclusivity provisions and voting by persons who will receive a benefit if the scheme is implemented which do not arise in the circumstances of the scheme. Mr Jackman addresses the question of performance risk as to the scheme consideration. In Re Ellerston Global Investments Ltd above at [29], I referred to a practice that has developed to address performance risk, by which the transfer of shares in a scheme company to an acquirer is conditional on the payment of the consideration to target shareholders, and I referred to the many cases which have endorsed that practice. Pursuant to clause 5.1(a) of the scheme, an amount equal to the aggregate amount of the scheme consideration will be paid, or procured to be paid, by WPP into an Australian dollar denominated trust account operated by WPPA as trustee for the WPPA shareholders by no later than the Business Day before the Implementation Date. WPPA will open, or will cause its share registry to open, that trust account with an authorised deposit-taking institution within the meaning of the Banking Act 1959 (Cth). Under cl 5.1(b) of the scheme, on the Implementation Date, WPPA must pay, or procure to pay, the scheme consideration to WPPA shareholders other than the Excluded Shareholders. The obligations of WPP and CSH under the scheme are supported by a deed poll given by them in favour of the scheme shareholders and, under cl 5.3(e) of the SID, WPP was required to execute and deliver, and procure CSH to execute and deliver, the Deed Poll prior to the first Court hearing and WPP and CSH executed that Deed Poll on 10 March 2021. I have referred above to the evidence that the relevant obligations are enforceable in the applicable jurisdictions.
Mr Jackman also notes that cl 8.2(b) of the scheme provides that each scheme shareholder is taken to have given specified warranties to WPPA and CSH, including that on the Implementation Date all their WPPA shares are free from encumbrances and interests of third parties of any kind. The case law has recognised the legitimacy of deemed warranty provisions, provided that appropriate disclosure is made, since their purpose and effect is to ensure that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged: Re Talent2 International Ltd [2012] FCA 771 at [16]; Re Atlassian Corporation Pty Ltd [2013] FCA 1451 at [36]; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Re Villa World Ltd above at [25]. This matter does not give rise to any reason not to convene the scheme meeting.
Mr Jackman notes that it is proposed that the scheme meeting will be held, unusually in recent times, as a physical meeting given a perceived improvement in the position in respect of the COVID-19 pandemic in New South Wales, and the easing of government restrictions, with an option for scheme shareholders to view a webcast of the meeting and submit questions remotely, but not vote remotely. The procedures for voting and participation in the scheme meeting are disclosed in the Chairman's Letter and Annexure 4 of the scheme booklet, and cross-referenced in the 'Frequently Asked Questions' and section 3.2 of the scheme booklet. I see no difficulty with this approach.
Mr Jackman notes that WPPA shareholders who have elected to receive communications electronically will be notified by email of the scheme meeting, with URL links to the scheme booklet and a personalised proxy form. He points out that WPPA's constitution permits notice of meetings to be given electronically if the WPPA shareholder has nominated an email address for that purpose. He also submits and I accept that it is now commonplace for electronic mail-out orders to be made by the Courts in relation to notices of scheme meetings: Re Ardent Leisure Limited above at [27]; Re TPG Telecom Ltd [2020] NSWSC 772 at [32]. He also points out that the proposed deadline for receipt of proxy forms (including proxy forms lodged online) or powers of attorney is disclosed in the notice of scheme meeting and in the "Key Dates" section of the scheme booklet and that date is consistent with WPPA's constitution and s 250B(1) of the Corporations Act, which require proxy forms to be received at least 48 hours before the scheme meeting.
Mr Jackman also addresses the position as to s 411(17) of the Corporations Act. He rightly notes that it is now settled that the Court will address the question posed by s 411(17) on the application to approve a scheme at the second Court hearing: Re TPG Telecom Ltd above at [31]; Re Ellerston Global Investments Ltd above at [35]. I have referred to ASIC's advice as to an issue that may arise at that hearing above, but that issue can be addressed if and when it arises.
Orders
None of these matters give rise to any reason not to make the orders sought. For these reasons, I was satisfied that I should make the orders sought by WPPA at the conclusion of the first scheme hearing.
[4]
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Decision last updated: 21 April 2021