Solicitors:
Herbert Smith Freehills (Plaintiff)
Gilbert & Tobin (Bidder)
File Number(s): 2024/140992
[2]
Nature of the application and background
By Originating Process filed on 16 April 2024, the Plaintiff, Adbri Ltd ("Adbri") seeks orders under s 411 of the Corporations Act 2001 (Cth) ("Act") convening a meeting of its shareholders to consider a proposed scheme of arrangement between Adbri and the holders of its ordinary shares other than Barro Group Pty Ltd and its associates ("Barro Group") ("Independent Adbri Shareholders") and ancillary orders.
By way of background, Adbri is an Australian public company limited by shares and is listed on the Australian Securities Exchange ("ASX"). Adbri is a building products and construction materials group and produces and distributes cementitious materials, lime, aggregates, masonry products and industrial minerals.
On 14 December 2023, CRH ANZ Pty Ltd ("Bidder"), which is a subsidiary of CRH plc ("CRH"), and individuals and entities associated with the Barro Group (as defined in the scheme booklet), entered into a joint acquisition agreement under which they agreed to co-operate in respect of the proposed scheme. CRH is a global building and construction materials group based in the Republic of Ireland. The Barro Group is currently Adbri's largest shareholder and has a relevant interest in approximately 42.7% of Adbri shares, and is also a joint venture partner of Adbri in some activities. Three of the directors of Adbri (including the Chairman) are connected to the Barro Group.
On 27 February 2024 Adbri, CRH and Bidder entered into a scheme implementation deed ("SID"), under which they agreed to implement the proposed scheme subject to the satisfaction, or waiver, of several conditions precedent. The proposed scheme provides for Bidder to acquire of all of the issued shares in Adbri held by Independent Adbri Shareholders (as defined) \ for all cash consideration of $3.20 per fully paid ordinary share in the capital of Adbri. Following implementation of the scheme, all of the issued shares in Adbri will be held by Bidder (as to 57.4%) and the Barro Group (as to 42.7% approximately) and it is proposed that Adbri would delist from the official list of ASX.
I made the orders sought by Adbri at the conclusion of the hearing on 3 May 2024. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Williams, who appeared for Adbri, in this judgment.
[3]
Affidavit and other evidence
Adbri reads the affidavit dated 16 April 2024 of its solicitor, Mr Hastings, which exhibits a company search for Adbri which establishes that Adbri is a Part 5.1 body and also exhibits an ASX announcement referring to Adbri's entry into the SID.
Adbri also reads the affidavit dated 1 May 2024 of Mr Gashel, who is Adbri's Chief Financial Officer. Mr Gashel addresses Adbri's business and capital structure; the verification of the factual information related to Adbri in the proposed scheme booklet; the notification given to the Australian Securities & Investments Commission ("ASIC") of the hearing and the provision to ASIC of a draft of the proposed scheme booklet and the scheme; and consents to act as chairperson or alternate chairperson of the proposed scheme meeting, for the purposes of r 3.2 of the Supreme Court (Corporations) Rules 1999 (NSW) ("Rules"). Mr Gashel also addresses the amount of the break fee contemplated by the SID as a percentage of the equity value of Adbri implied by the scheme consideration of $3.20 per Adbri share; the exclusivity provisions contained in the SID and the length of the exclusivity period; the proposed manner of despatch of materials to Independent Adbri Shareholders and other communications in relation to the scheme.
Adbri also reads an affidavit dated 1 May 2024 of Mr Loveday, who is a director of the Bidder and a Senior Vice President Development for CRH Group. He gives evidence of verification of the factual information related to the Bidder; verification of the statements of intention attributable to the Bidder's board; funding for the scheme consideration; and execution of a deed poll in favour of scheme shareholders ("Deed Poll").
Adbri also tendered a letter dated 2 May 2024 from ASIC in common form, reserving its position as to s 411(17) of the Act to the second Court hearing and indicating that it did not propose to appear at the first Court hearing.
[4]
Applicable principles
Mr Williams notes that the principles governing an application for orders to convene a meeting of members under s 411(1) of the Act are well-settled and he refers to my judgment in Re InvoCare Ltd [2023] NSWSC 1180 ("InvoCare") at [14] where I observed, by reference to Counsel's submissions, that:
"subject to the matters in s 411(2), s 411 of the Act confers a power on the Court to order a meeting of members where a compromise or arrangement is proposed between a Part 5.1 body and its members or any class of them (s 411(1)); an application for the order is made in a summary way by the body (s 411(1)); 14 days' notice of the hearing of the application, or such lesser period of notice as the Court or ASIC permits, has been given to ASIC (s 411(2)); the Court is satisfied that ASIC has had a reasonable opportunity to, first, 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, second, to make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement (s 411(2))."
These requirements are satisfied here. Adbri is a Part 5.1 body and an acquisition scheme is a common example of an arrangement for the purposes of s 411 of the Act. As Mr Williams points out, ASIC has here been given appropriate notice as required under s 411(2) of the Act and I have referred to its letter in customary form above. Mr Williams also notes that the Court will wish to be satisfied that the procedural requirements of the Rules have been met. A company search was undertaken as required by the Rules. The chairperson and the alternate chairperson nominated for the proposed scheme meeting have each confirmed the matters required by r 3.2(b) of the Rules. Details of the second Court hearing will be advised to shareholders by an ASX announcement and, as is now common practice, Adbri seeks dispensation from the requirement under r 3.4 of the Rules for publication of a notice in the form of Form 6, consistently with Practice Note SC Eq 4 at [26(f)]. The proposed draft orders for the convening of the scheme meeting identify the scheme as required by r 3.3(1) of the Rules. A webcast of the scheme meeting will be made available online to allow Independent Adbri Shareholders who are not present in person to view the scheme meeting and those shareholders will also have the ability to submit questions online in advance of the scheme meeting and to vote by proxy.
Mr Williams also notes the principles which apply to the exercise of the Court's discretion at a first Court hearing and refers to my judgment in Re Villa World Ltd [2019] NSWSC 1207 at [15]-[19]. The Court will also wish to be satisfied that the scheme booklet provides proper disclosure to shareholders and that the scheme is fit for consideration by the proposed scheme meeting in the sense that it is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed; and shareholders are properly informed as to the nature of the scheme before the scheme meeting.
Mr Williams submits and I accept that the scheme is an all cash acquisition scheme and there is nothing in the terms of the scheme, or in its effect on Independent Adbri Shareholders, that would warrant the Court declining to permit its consideration by members. The evidence indicates that a verification process has been undertaken in customary from and, subject to the specific matters I address below, there is no reason to think that the Court would not approve the scheme at a second Court hearing if it receives the requisite majorities at the scheme meeting. The scheme booklet indicates that Adbri's directors other than the three directors associated with the Barro Group ("Adbri Independent Directors") unanimously recommend that Independent Adbri Shareholders vote in favour of the scheme, in the absence of a superior proposal, and subject to the independent expert continuing to conclude that the scheme is in the best interests of Adbri Independent Shareholders. Subject to the same qualifications, each Adbri Independent Director intends to vote, or procure the voting of, all Adbri shares held or controlled by them in favour of the scheme. The scheme booklet also indicates that the proposed scheme meeting will take place as an in-person rather than a hybrid meeting. As Mr Williams points out, an independent expert's report prepared by Grant Samuel & Associates Pty Limited ("Grant Samuel") expresses the view that that the scheme is fair and reasonable and therefore is in the best interests of Independent Adbri Shareholders, in the absence of a superior proposal.
[5]
Several additional matters
Consistent with the ex parte nature of the application, Mr Williams addresses several additional matters. First, he addresses the position as to Adbri equity incentives. He notes that, as set out in section 9.2 of the proposed scheme booklet, Adbri operates a cash and equity-based "Short Term Incentive Plan" for the benefit of senior management and other Adbri employees and deferred rights delivered under the Short Term Incentive Plan (and the shares acquired on their exercise) are subject to disposal restrictions; Adbri also operates an "Executive Performance Incentive Plan" under which Adbri executives receive awards, each of which converts to one Adbri share on exercise, subject to disposal restrictions; and Adbri also operates a "Tax Exempt Employee Share Plan" under which all eligible full-time and part-time employees can participate in awards of up to $1,000 worth of Adbri shares annually, subject to disposal restrictions. The scheme booklet discloses that no Adbri director holds any Adbri equity incentives and that the Chief Executive Officer of Adbri, Mr Irwin, is not an Adbri director, so no disclosure issue arises in respect of the recommendation made by the Adbri Independent Directors in this respect. Mr Williams points out that cl 3.1(h) of the SID includes a condition precedent that arrangements have been put in place so that no "Adbri Equity Incentives" are in existence on the Scheme Record Date (as defined in the SID), and the manner in which Adbri intends to satisfy this condition is described in section 9.2(b) of the scheme booklet. Mr Williams submits and I accept that holders of Adbri Equity Incentives who are also Independent Adbri Shareholders are not in a separate class of members by reason only that they also hold such rights: Re Foster's Group Ltd (No 2) [2011] VSC 547 at [38]-[43]; Re Cashcard Australia Ltd (2004) 48 ACSR 738.
Second, Mr Williams addresses the position as to a break fee in respect of the proposed scheme. Under cl 10.2 of the SID, Adbri must pay Bidder a break fee of approximately $21 million in specified circumstances. He submits and I accept that the circumstances in which the break fee is payable do not depart from common practice and I note that a break fee is not payable merely because the resolution submitted to the scheme meeting is not approved by the required majorities. Mr Williams also points out that the break fee represents approximately 1% of the equity value of Adbri (based on the scheme consideration of $3.20 per Adbri share), consistent with the Australian Takeovers Panel's guidance. However, Mr Williams rightly draws attention to the fact that the break fee is greater than 1% of the aggregate value of the shares held by the Independent Adbri Shareholders which represent approximately 57.7% of total Adbri shares on issue. Mr Williams points to several previous schemes where Australian courts have accepted a break fee or reimbursement fee that was calculated as approximately 1% of the total equity value of the target, although the transaction was not directed to all shareholders and its value was significantly less than the full equity value of the target, the most relevant of which were schemes relating to Village Roadshow Ltd in (2020) (where the scheme excluded a 39.91% interest held by the joint bidders) and to Azure Minerals Limited in 2024 (where the scheme excluded a 37.8% interest held by the joint bidders). I am not persuaded this is a reason not to convene the scheme meeting, where the Bidder's costs which will be wasted if a scheme does not proceed are not necessarily reduced by the fact that it is not acquiring all of the shares in the scheme company; and, as Mr Williams points out, the proportionately higher break fee here still has no coercive effect, where it is not payable if Adbri Independent Shareholders do not approve the scheme.
Third, Mr Williams addresses the questions of funding of the scheme consideration and performance risk. He points out that the proposed scheme adopts, in cl 5.1 of the scheme, a conventional mechanism of making the transfer of Adbri shares to the Bidder conditional on the payment of the total scheme consideration into a trust account maintained by Adbri. He submits and I accept that this mechanism protects Independent Adbri Shareholders against the risk that their Adbri shares are transferred without receiving the scheme consideration. He points out that Independent Adbri Shareholders have the further protection of a deed poll entered into by Bidder and CRH in their favour which is governed by New South Wales law and under which the parties submit to the exclusive jurisdiction of New South Wales courts. I accept that these are well-established means of managing performance risk: Re ELMO Software Pty Ltd [2023] NSWSC 12 at [27]-[28].
Mr Williams also points out that the payment of the scheme consideration is to be funded from cash reserves of the CRH Group (as defined in the draft scheme booklet) of US$6,341 million (AU$9,337 million) and that CRH has guaranteed Bidder's obligations to pay the scheme consideration, and Bidder's commitment (and CRH's guarantee) under the Deed Poll is only conditional on the scheme becoming effective under cll 2.1 and 2.2 of the Deed Poll. The Bidder is an Australian subsidiary of CRH and not, strictly, a special purpose company since it was previously incorporated to carry on the Australian operations of the CRH and not specifically for the bid. I accept that the evidence as to these matters sufficiently evidences the Bidder's capacity to pay the scheme consideration.
Fourth, Mr Williams addresses the despatch of information relating to the scheme to Independent Adbri Shareholders. The scheme booklet and associated documents will be despatched in now common fashion, electronically or in hard copy form depending on elections made by shareholders, and I accept that the proposed manner of despatch is consistent with ss 110D-110E of the Act.
Adbri also proposes to undertake several other communications with Independent Adbri Shareholders. It is also proposed that, following despatch of the scheme booklet, Adbri may send "reminder to vote" emails and text messages to Independent Adbri Shareholders in relation to the scheme, and drafts of these communications were tendered. Adbri also proposes that a third party will operate an inbound shareholder information line and a draft "Inbound Q&A script" was also tendered. That third party will also conduct an outbound call campaign directed to Independent Adbri Shareholders who hold more than 1,001 Adbri shares and personnel conducting the calls will be required to follow the "Outbound Engagement Script" which is in evidence. Adbri has also prepared a slide deck for proposed meetings with proxy advisors.
Mr Williams submits and I accept that the call scripts do not travel beyond the information in the proposed scheme booklet and they draw attention to advantages and disadvantages of the scheme and encourage shareholders to read the scheme booklet in its entirety. Adbri draws these proposed communications with Independent Adbri Shareholders to the Court's attention, although no orders are sought approving the form of such documents, in accordance with current scheme practice noted in InvoCare (at [26]) and Practice Note SC Eq 4 [26(k)]. I have noted these documents and no matters emerge from them which are likely to give rise to difficulty at the second Court hearing and which I should now draw to Adbri's attention.
[6]
Orders
For these reasons, I made the orders sought by Adbri at the conclusion of the first Court hearing on 3 May 2024.
[7]
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Decision last updated: 10 May 2024