Lion Nathan Limited, in the matter of Lion Nathan Limited [2009] FCA 870

There be convened by the plaintiff a meeting of its shareholders other than Kirin Holdings Company, Limited ("Kirin") and its related bodies corporate ("Non-Kirin Shareholders") to be held at or about 10.00 am (Sydney time) on 17 September 2009 ("Scheme Meeting"), for the purposes of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme of Arrangement in the form set out in annexure "B" to the draft Scheme Booklet at Tab 5 of Exhibit "NAV-1" ("Scheme of Arrangement"). 2. The Scheme Meeting be held at the Grand Ballroom, the Hilton Sydney, 488 George Street, Sydney in New South Wales. 3. The explanatory statement, constituted in the form of the document entitled "Scheme Booklet" at Tab 5 of Exhibit "NAV-1", as amended by Exhibit "1", including the documents described therein respectively as annexures "A", "B", "C", "D", "E" and "F" and incorporating a letter and report of Lonergan Edwards & Associates Limited, be approved for distribution to the Non-Kirin Shareholders. 4. Notice of the Scheme Meeting be given to those Non-Kirin Shareholders whose address in the register of shareholders of the Plaintiff maintained by Computershare Investor Services Pty Limited is in New Zealand by dispatch of the documents referred to in Order 2 by bulk delivery via air courier from Sydney to Auckland (departing on or about 18 August 2009) and individual mail from Auckland by pre-paid ordinary post to each such shareholder (on or before 19 August 2009). 5. To the extent inconsistent with Order 3 above, rule 3.3(2) of the Federal Court (Corporations) Rules 2000 (Cth) not apply in respect of the Scheme Meeting. 6. Geoffrey Thomas Ricketts or, failing him, Duncan Harold Makeig are authorised to act as chairperson for the Scheme Meeting referred to in Order 1 above and report to the Court on the outcome of the meeting. 7. The chairperson of the Scheme Meeting appointed under Order 5 have power to adjourn the Scheme Meeting if, in his opinion, that is necessary or desirable. 8. Save for Regulation 5.6.13 of the Corporations Regulations 2001 (Cth), rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) shall not apply to the meeting referred to in Order 1 above. 9. The plaintiff be granted liberty to apply. 10. This proceeding be stood over until 7 October 2009 at 9:30 a.m. before Justice Emmett, or such other time as the Court directs, for consideration of orders approving the Scheme of Arrangement. 11. These orders be entered forthwith. THE COURT ORDERS THAT: 12. Until further order of the Court or except with the consent of the Plaintiff the following information and documents be treated as confidential and not be provided or disclosed to any person except as indicated in Order 14: (a) the passages of the affidavit of Jamie Clifford Tomlinson sworn on 3 August 2009 which are shaded yellow; (b) the passages of the first affidavit of Duncan Harold Makeig sworn on 4 August 2009 which are shaded yellow; (c) Exhibit JCT-1 in its entirety; and (d) the documents behind Tabs 52, 53, 54, 55 and 56 of Exhibit DHM-1. 13. Until further order of the Court or except with the consent of Kirin Holdings Company, Limited ("Kirin") the following information and documents be treated as confidential and not be provided or disclosed to any person except as indicated in Order 14: (a) paragraphs 17 to 19 inclusive of the affidavit of Hirotake Kobayashi affirmed 4 August 2009; (b) Exhibit HK-4 in its entirety; and (c) Exhibit HK-5 in its entirety. 14. Orders 13 and 14 do not restrict access to the information and documents identified in those orders to the following persons: (a) the Court and Court staff. (b) the Plaintiff, personnel of the Plaintiff and the Plaintiff's advisors; and (c) Kirin, personnel of Kirin and Kirin's advisors. 15. Subject to further order of the Court, at the conclusion of the hearing in this proceeding on 5 August 2009, the following Exhibits be returned to the solicitors for the Plaintiff to be kept in safe custody for at least 28 days following the conclusion of these proceedings: (a) Exhibit JCT-1 (b) Exhibit DHM-1; (c) Exhibit HK-4; and (d) Exhibit HK-5.

REASONS FOR JUDGMENT 1 The plaintiff, Lion Nathan Limited (Lion Nathan), has applied to the Court for orders under s 411 of the Corporations Act 2001 (Cth) (the Corporations Act) convening a meeting of certain shareholders of Lion Nathan for the purpose of considering a scheme of arrangement. The purpose of the proposed scheme of arrangement is for Kirin Holdings Company Limited (Kirin), to acquire all of the shares in Lion Nathan that it or its related entities do not already own. The scheme will effect the acquisition of those shares through a wholly owned subsidiary, Kirin Holdings (Australia) Pty Ltd. 2 If the scheme is approved and implemented, relevant shareholders will receive cash payments equal to $12 per share, made up of $11.50 scheme consideration for each share and a special dividend of 50 cents in relation to each share. Lion Nathan has recently, on 23 June 2009, paid an interim dividend of 22 cents per share. I shall shortly briefly refer to the circumstances of that dividend. 3 Lion Nathan is a public company. Its shares are quoted on the securities exchange of Australian Securities Exchange Limited (ASX). Some 534,240,495 ordinary shares are presently issued. Those shares are held by approximately 14,900 shareholders. Lion Nathan is a premium alcoholic beverages company with operations in Australia and New Zealand as well as some smaller operations in other countries. It produces, distributes and markets beer, wine, pre-mixed alcoholic drinks and alcoholic spirits. Some of its brands are distributed globally. Almost 150 separate companies, most of which are wholly owned by Lion Nathan, constitute the Lion Nathan Group. 4 Kirin and related entities own 246,454,275 shares in Lion Nathan. In addition, under various employee incentive plans, employees of members of the Lion Nathan Group have acquired rights to acquire shares in Lion Nathan. It is proposed that the incentive plans will be implemented in a way that will ensure that any further rights issued will be eliminated by the time that the scheme becomes effective. Lion Nathan intends to meet its entitlements in respect of the rights by the purchase of shares on market rather than the issue of new shares. 5 Following initial informal approaches by Kirin in relation to the possibility of acquiring the shares in Lion Nathan not already owned by it, an independent board committee was established by Lion Nathan. The independent board committee comprised the directors of Lion Nathan who were not associated with Kirin and who are not executive directors together with Mr Duncan Makeig, the general counsel and company secretary of Lion Nathan. The purpose of the committee was to oversee and manage any governance and stakeholder issues arising from the discussions with Kirin in relation to its investment in Lion Nathan. The committee was reconstituted as an independent response committee following receipt of a proposal from Kirin on 22 April 2009. 6 On 26 April 2009, a meeting of the committee was held to consider Kirin's proposal in the light of the outcome of discussions and negotiations that took place in the meantime and on 27 April 2009 Lion Nathan and Kirin separately announced the key commercial terms under which Kirin proposes to acquire all of the shares in Lion Nathan not already held by it or its associates. On 10 May 2009, Lion Nathan and Kirin entered into an implementation agreement containing the terms and conditions on which the proposal would be implemented. There have been subsequent minor amendments to the implementation agreement. 7 Steps have been taken to prepare a draft explanatory statement (the Scheme Booklet) for the purposes of s 411(3) of the Corporations Act. Section 411(2) provides that the Court must not make an order pursuant to s 411 convening a meeting of members unless the Court is satisfied that the Australian Securities and Investments Commission (the Commission) has had a reasonable opportunity to make submissions in relation to a draft explanatory statement. Section 411(3) then defines the term draft explanatory statement. 8 The Scheme Booklet as proposed contains, as well as descriptive material relating to the proposal, a copy of the implementation agreement and its amendments, a copy of a proposed deed poll binding Kirin to perform its side of the proposed arrangements, a list of announcements made by Lion Nathan to ASX since March 2009 and notice of the proposed meeting of shareholders, together with a copy of an independent expert's report prepared by Lonergan Edwards & Associates Limited (Lonergan Edwards) in relation to the proposal. 9 Lion Nathan proposes that the meeting to consider the scheme will be convened by sending to relevant shareholders the Scheme Booklet, an individual proxy form and, for those shareholders who do not have a payment direction from an Australian or New Zealand bank account recorded in the register, a direct credit form for the purpose of providing details as to where the special dividend and scheme consideration are to be paid. It is proposed that the scheme meeting will be held in Sydney on 17 September 2009. 10 In order to prepare the Scheme Booklet, Lion Nathan established a drafting committee comprising representatives of Lion Nathan, Caliburn Partnership Pty Ltd (Lion Nathan's financial advisers in relation to the proposal) and Mallesons Stephen Jaques (Lion Nathan's Australian legal advisers for the purposes of the proposed scheme). In order to ensure the accuracy and completeness of the Scheme Booklet, a verification process was established by the drafting committee which was described in a verification pack prepared by Mallesons. There is evidence before the Court of the detailed steps taken to verify the accuracy of the material to be included in the Scheme Booklet. 11 Mr Duncan Makeig is satisfied that, on the basis of the verification procedures to which I have just referred and his own knowledge, the statements in the Scheme Booklet are materially true and correct and contain no material omissions. He is also satisfied that all opinions are honestly held and formed on a reasonable basis. 12 Lion Nathan operates two employee incentive plans in Australia and three employee incentive plans in New Zealand. They would be affected by the scheme if it proceeds. Mr Makeig has explained in his affidavit of 4 August 2009 the detailed steps that will be taken to accelerate the granting of rights under those schemes such that there will be no outstanding rights at the time when the scheme is approved, if that is to occur. 13 The evidence before the Court includes affidavits by Mr Craig Edwards and Mr Martin Holt of Lonergan Edwards. They are the authors of the proposed expert's report to be included in the Scheme Booklet. Lonergan Edwards have concluded that the proposed acquisition of shares in Lion Nathan by Kirin under the scheme is fair and reasonable and in the best interests of Lion Nathan's shareholders. They recommend that Lion Nathan shareholders vote in favour of the scheme. In their report they give detailed reasons for their conclusions. 14 Lonergan Edwards valued the shares in Lion Nathan on a controlling interest basis at between $10.95 and $12.21 per share. The amount of the cash payments of $12.00 per share is in the upper end of the valuation band as determined by Lonergan Edwards. In their report, Lonergan Edwards summarise the likely advantages and disadvantages for Lion Nathan shareholders and conclude that, on balance, they consider the acquisition of Lion Nathan shares by Kirin to be fair and reasonable and in the best interests of shareholders. 15 In February 2000 Lion Nathan and Lion Nathan Finance (Australia) Pty Limited entered into certain note guarantee agreements. Mr Makeig's affidavit contains detailed disclosure of certain terms of those provisions, part of which is confidential. The evidence before me indicates that a number of regulatory consents and approvals have been obtained by Lion Nathan including from the Australian Foreign Investment Review Board, the Australian Competition & Consumer Commission and the Overseas Investment Office of New Zealand. 16 Lion Nathan has raised the possibility that the dividends to which I have referred may involve the giving of financial assistance by Lion Nathan to Kirin in connection with the acquisition of shares. Under s 260A of the Corporations Act, a company may financially assist a person to acquire shares or units of shares in the company only if, relevantly, giving the assistance does not materially prejudice that the interests of the company or its shareholders or the company's ability to pay its creditors. 17 Mr Jamie Tomlinson is the chief financial officer of Lion Nathan. Mr Tomlinson was asked to consider whether the payment of the dividends to which I have referred materially prejudices the interests of Lion Nathan and its shareholders or Lion Nathan's ability to pay its creditors. Mr Tomlinson concludes that the payment of the dividends will not materially prejudice the interests of Lion Nathan or its shareholders or Lion Nathan's ability to pay its creditors. In his affidavit of 3 August 2009, which contains commercially sensitive and confidential information, Mr Tomlinson analyses the financial position of Lion Nathan to support the conclusion that he reaches concerning the effect of the dividends. That material indicates that there is unlikely to be any contravention of s 260A. 18 Having regard to the ex parte nature of proceedings such as the present phase of Lion Nathan's application, Lion Nathan has disclosed a number of matters and specifically drawn the Court's attention to those matters. The s 260A issue is one of the matters to which the Court's attention has been drawn. In addition, the funding arrangement for Kirin to supply the cash consideration has been adverted to. The deemed warranties by Lion Nathan shareholders in respect of shares that would be acquired by Kirin have been drawn to the Court's attention. 19 Another specific matter raised in the evidence before the Court is the proposal that voting that the scheme be undertaken by the use of electronic technology. The operation of the technology is described in an affidavit of Mr Oliver Bampfield of 31 July 2009. The technology involves the use of a series of handheld keypads that are distributed to members or proxies who attend the meeting. The technology also involves central wireless transmitters, data servers and particular software designed to ensure that the shareholders and proxies can vote by the use of the individual keypads. The evidence of Mr Bampfield indicates that it should be possible to trace the steps taken by voters in relation to the use of the keypads. There is nothing in the material that indicates a basis for concern as to the fairness or reliability of the system. However, I prefer to make no firm observations until there is some evidence as to how the technology operates in fact. 20 Mallesons Stephen Jaques, on behalf of Lion Nathan, have submitted to the Commission the Scheme Booklet in draft form and the Commission, by letter of 4 August 2009, has indicated it does not currently propose to appear to make submissions or intervene to oppose the scheme of arrangement. However, the Commission will not be in a position to advise formally on its position pursuant to s 411(17) of the Corporations Act until the entire scheme process is completed. In the circumstances, I am satisfied that the Commission has had ample opportunity to consider the Scheme Booklet in its draft form and that the Scheme Booklet constitutes fair disclosure of the proposal. 21 There is nothing in the material before the Court at present to suggest that there is any misleading or deceptive material in the proposed scheme booklet. In all of the circumstances, I consider that it is appropriate to accede to Lion Nathan's application to convene the proposed meeting. 22 Rule 3.3(2) of the Federal Court (Corporations) Rules 2000 (Cth) requires that shareholders be notified in accordance with the company's constitution. It is contemplated that shareholders will be notified of the meeting by mail if their respective addresses are in Australia by dispatch on 18 August 2009. However, because of possible delay in delivery through the ordinary course of post, it is contemplated that the documents to be sent to shareholders with New Zealand addresses on the register will be sent in bulk by courier to Auckland and will then be mailed by prepaid ordinary post in New Zealand. That course of notification may not satisfy the requirements of clause 18.2 of Lion Nathan's constitution. Clause 18.2 provides that Lion Nathan may give a document to a member personally by sending it by post to the address for the member in the register, by sending it to a fax number or electronic address nominated by the member or by sending it to the member by other electronic means. 23 Posting in New Zealand does not strictly satisfy the requirement of r 3.32. To the extent that it is proposed to notify New Zealand shareholders in the manner that I have described, it is appropriate to waive compliance with that rule. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

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