oOh!Media Group Limited, in the matter of oOh!Media Group Limited [2012] FCA 26

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 52 of 2012

IN THE MATTER OF OOH!MEDIA GROUP LIMITED ACN 091 780 924 OOH!MEDIA GROUP LIMITED (ACN 091 780 924)

JUDGE: YATES J DATE: 20 JANUARY 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 On 20 January 2012 I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) providing for the convening of a meeting (the scheme meeting) of the scheme shareholders (being members of the plaintiff (OOH) other than those members referred to, collectively, as the CHAMP III Funds) for the purpose of considering and, if thought fit, agreeing to a scheme of arrangement (with or without modification) between OOH and the scheme shareholders, the terms of which are set out in Attachment B to the Scheme Booklet, a final draft of which is Exhibit 1 in the proceeding (the scheme). 2 Exhibit 1 includes certain additions which are to be made to the Scheme Booklet to be sent to scheme shareholders. The Scheme Booklet will stand as the explanatory statement required by s 412(1)(a) of the Act. 3 At the time of making the orders I said that I would publish brief reasons. These are my reasons.

Background 4 OOH is a public company listed on the Australian Securities Exchange (ASX). Its main business activity is the provision of outdoor advertising across Australia. 5 OOH has approximately 501,225,275 ordinary shares on issue held by 891 members, of whom 28 are registered as being resident overseas. It also has 23 million options on issue which remain unvested. The options have an exercise price of $0.12 per share and are due to expire on 20 May 2015. 6 The CHAMP III Funds comprise Perpetual Trustee Company Limited as trustee of the CHAMP Buyout III Trust, Perpetual Corporate Trust Limited as trustee of the CHAMP Buyout III (SWF) Trust and CHAMP Buyout III Pte Ltd. They now hold approximately 19.6% of the issued capital of OOH and are managed and advised by CHAMP III Management Pty Limited (CHAMP III Management). CHAMP III Management is part of CHAMP Private Equity, an Australian-based private equity firm with offices in Sydney and Brisbane, and affiliated offices in Singapore and New York. The CHAMP III Funds have an aggregate committed capital of approximately $1.5 billion. 7 The CHAMP III Funds own 100% of the issued capital of Outdoor Media Investments Limited (Outdoor Media Investments), which owns 100% of the issued capital of Outdoor Media Holdings Pty Limited (Outdoor Media Holdings), which in turn owns 100% of the issued capital of Outdoor Media Operations Pty Limited (Outdoor Media Operations). 8 Outdoor Media Investments is a special purpose company that was incorporated on 8 December 2011 for purposes which include holding all the shares in Outdoor Media Holdings. It is an "exempted company" incorporated under the laws of the Cayman Islands. 9 Outdoor Media Holdings is a special purpose company that was incorporated on 9 December 2011 for the purpose of holding all the shares in Outdoor Media Operations. Outdoor Media Holdings is a private Australian company that has not undertaken any trading activities. 10 Outdoor Media Operations is also a special purpose company that was incorporated on 9 December 2011 for the purpose of acquiring the scheme shares. Outdoor Media Operations is a private Australian company that has not undertaken any trading activities. If the scheme becomes effective, it will own 100% of the scheme shares.

The scheme 11 Under the scheme as proposed, Outdoor Media Operations will acquire all the issued shares in OOH not already held by the CHAMP III Funds. The scheme shareholders will receive, at their individual election, either cash consideration of $0.325 for each share in OOH held as at 7.00 pm on 8 March 2012 (the Record Date) or mixed consideration of $0.10 cash and one fully-paid B class ordinary share in the capital of Outdoor Media Investments, for each share held in OOH. 12 There are two qualifications concerning the scheme consideration which should be noted. 13 First, scheme shareholders whose registered address is a place outside Australia and its external territories and outside Singapore (called Ineligible Foreign Shareholders) cannot elect to take the mixed consideration. They will only be entitled to the cash consideration. I will return to the position of Ineligible Foreign Shareholders. 14 Secondly, and more generally, the mixed consideration will not be available in any event if elections for the mixed consideration are made by scheme shareholders in relation to less than 100 million OOH shares (the minimum scrip number). 15 The CHAMP III Funds will not vote on the scheme. 16 The scheme is subject to certain conditions. It is only necessary to mention two of them for present purposes. 17 First, it is a condition of the scheme that agreement is reached with each option holder of the 23 million options on issue, providing for the cancellation of the options for $0.205 per option or requiring the exercise of the options by no later than the date on which the scheme comes into effect pursuant to s 411(1) of the Act (the Effective Date). 18 ASX Listing Rule 6.23.2 provides that options cannot be cancelled except with the approval of the shareholders. It is proposed, therefore, that a general meeting of the members of OOH will be convened and held immediately before the scheme meeting to consider and, if thought fit, pass an ordinary resolution cancelling the options, subject to the scheme becoming effective on or before 31 March 2012 ("the End Date"). The CHAMP III Funds will be eligible to vote at that meeting. 19 Secondly, it is a condition that an independent expert examine the scheme and form the conclusions that: (a) it is in the best interests of scheme shareholders; and (b) the cash consideration is fair and reasonable. 20 Grant Thornton Corporate Finance Limited (Grant Thornton) has been engaged by the directors of OOH to prepare a report advising on those matters. A signed report verified by one of its authorised representatives, Andrea De Cian, is in evidence. The report expresses the opinion that the scheme is fair and reasonable and in the best interests of the scheme shareholders. It also expresses the opinion that the cash consideration under the scheme is fair and reasonable to the scheme shareholders. These opinions are supported by Mr De Cian's evidence. 21 In the report, Grant Thornton compared the fair market value of OOH shares, on a control basis before the proposed scheme, with the value of the cash consideration. The fair market value of the OOH shares was assessed on the capitalisation of maintainable earnings approach. The cash consideration under the scheme is within the valuation range that was assessed on that basis. Grant Thornton concluded that the cash consideration represented a premium of 91% compared with the one week volume weighted average price ("VWAP") of OOH prior to 10 November 2011 (when OOH announced to the ASX that it had received an indicative proposal in relation to the scheme); 92% compared with the one month VWAP of OOH prior to 10 November 2011; and 61% compared with the $20 million fund raising completed by OOH in December 2010 and January 2011 at an average price of $0.202 per share. 22 For completeness, I should add that Grant Thornton expressed the view that the mixed consideration was below the assessed value range. However, in forming an opinion in relation to the fairness of the scheme as a whole, Grant Thornton took into account that the cash consideration is fair and reasonable; that the cash consideration is the default consideration option; and that the mixed consideration is really offered to those scheme shareholders (other than Ineligible Foreign Shareholders) who would wish to retain an exposure to the underlying business of OOH. 23 Assuming the minimum scrip number is not achieved and no options are exercised before the Effective Date, the maximum cash consideration under the scheme will be approximately $130,973,164. This amount will be funded by Outdoor Media Operations using new debt facilities as well as funds to be provided to Outdoor Media Investments by the CHAMP III Funds. 24 The scheme consideration will be provided to scheme shareholders in the following manner: (a) before 12 noon on the Implementation Date (which will be five business days after the Record Date or such other date as OOH and Outdoor Media Operations agree in writing), Outdoor Media Operations or Outdoor Media Investments will pay the aggregate cash consideration into a trust account operated by or on behalf of OOH to be held on trust for, and to enable payment of the cash consideration to, the scheme shareholders within five business days after the Implementation Date; (b) before 12 noon on the Implementation Date, Outdoor Media Investments will allot, or Outdoor Media Operations will procure the allotment of, the fully-paid class B ordinary shares in Outdoor Media Investments to each applicable scheme shareholder. Outdoor Media Investments or Outdoor Media Operations will procure the entry, on the Implementation Date, of the name and address of each such scheme shareholder in the share register of Outdoor Media Investments. 25 Outdoor Media Operations and Outdoor Media Investments have entered into a deed poll in which they have given covenants in favour of the scheme shareholders to provide, or procure the provision of, the scheme consideration in accordance with the scheme. 26 There are some other features of the scheme which should be mentioned. 27 The scheme provides for deemed warranties by the scheme shareholders that all their shares to be transferred to Outdoor Media Operations under the scheme will, on the date they are transferred, be fully paid and free from all encumbrances and third party rights or interests of any kind, and that they have full power and capacity to sell and transfer their scheme shares under the scheme. I am satisfied that these warranties are satisfactorily disclosed in the explanatory statement: see Re APN News & Media Ltd (2007) 62 ACSR 400 at [57]-[63]; ABB Grain Ltd, in the matter of ABB Grain Ltd [2010] FCA 1309 at [34]-[39]. 28 The second matter to be noted is that on 13 December 2011 OOH and Outdoor Media Operations entered into a Scheme Implementation Agreement. The Scheme Implementation Agreement included a provision restricting OOH from soliciting alternative offers during a period defined as the Exclusivity Period (being, at most, the period 13 December 2011 to 31 March 2012) (the no shop provision). The Scheme Implementation Agreement also contains a restriction on OOH talking to third parties about a competing proposal or offer, allowing third parties to undertake due diligence for the purposes of a competing proposal, and requiring Outdoor Media Operations to be given notice of any such discussions with third parties during the Exclusivity Period (the no talk provision). The no talk provision is subject to a fiduciary duty "carve out" which allows the OOH directors to talk to third parties and to provide them with due diligence, without notification to Outdoor Media Operations, in the event that the directors, acting in good faith, determine that the discussions may reasonably be expected to lead to a superior proposal and that failing to engage with a third party would be likely to constitute a breach by the directors of their duties. 29 The no shop provision and the no talk provision were the subject of negotiation between OOH and Outdoor Media Operations, each of whom were advised and represented by external legal advisers and external commercial advisers. Mr Simon Yeandle, the Chief Financial Officer of OOH, participated in those negotiations. He has expressed the belief that those provisions were in the interests of OOH shareholders in order to secure Outdoor Media Operations' agreement to enter into the Scheme Implementation Agreement: see Re APN at [55]. I accept that evidence. I am satisfied that the Exclusivity Period is, in the circumstances, no more than a reasonable period. I am also satisfied that the no shop provision and the no talk provision have been satisfactorily disclosed in the explanatory statement: see Re Arthur Yates & Co Ltd (2001) 36 ACSR 758 at [9]. I should add that the evidence discloses that, since the announcement of the indicative proposal to the ASX on 10 November 2011, the scheme has been widely publicised and no superior proposal has emerged. 30 I return to the position of Ineligible Foreign Shareholders. Restrictions in jurisdictions outside of Australia may mean that it is unlawful or impractical for shares in Outdoor Media Investments to be issued under the scheme to scheme shareholders whose addresses are shown to be a place outside Australia and its external territories and outside Singapore. There are 23 such shareholders (out of 28 foreign shareholders). Under the scheme, if approved, they will be deemed to have elected to take the cash consideration. As at 19 January 2012 the 23 Ineligible Foreign Shareholders held 141,000 OOH shares, representing approximately 0.03% of the issued capital of OOH. I am satisfied that the proposed treatment of the Ineligible Foreign Shareholders is appropriate in the circumstances and that they do not create a separate class: see Adelaide Bank Limited, in the matter of Adelaide Bank Limited [2007] FCA 1582 at [40]-[41]; Re CSR Ltd (2003) 45 ACSR 34 at [5].

The position of the OOH directors 31 Each of the OOH directors has considered the scheme. Four of those directors have considered it appropriate to make a recommendation in relation to it. Each of those directors recommends that the scheme shareholders vote in favour of the scheme, in the absence of a superior proposal. They also recommend that the scheme shareholders elect for the cash consideration. They do not desire to make a recommendation about the mixed consideration, save that shareholders considering that proposal should carefully consider and take into account the matters stated in the explanatory statement with respect to the shares to be issued by Outdoor Media Investments in that regard. Each of these directors who holds or controls OOH shares has stated that he intends to vote in favour of the scheme in the absence of a superior proposal. 32 The remaining two directors are not considered to be relevantly independent because of the particular association that each has with a substantial shareholder of OOH. Each of those directors has participated in the consideration of the scheme by the substantial shareholder with which he is associated. Each of those substantial shareholders intends to support the scheme. For those reasons these directors do not desire to make, and each does not consider it appropriate to make, a recommendation to scheme shareholders.

The position of ASIC 33 OOH's solicitors provided ASIC with a draft of the explanatory statement on 23 December 2011. At the same time they gave notice of OOH's intention to make its application to the Court on 20 January 2012. There have been subsequent communications with ASIC in relation to the draft explanatory statement. ASIC has confirmed that, in accordance with s 411(2) of the Act, it has had 14 days notice of the hearing of the application to the Court to convene the scheme meeting and that it has had reasonable opportunity to examine the terms of the proposed scheme and the draft explanatory statement relating to the scheme. ASIC also indicated that it did not propose to appear at the hearing on 20 January 2012 to make submissions or to oppose the scheme.

Consideration 34 I am satisfied that OOH is a "Part 5.1 body" and that the proposed scheme is an "arrangement" within the meaning of s 411(1) of the Act. 35 I am satisfied that, subject to any further submissions, the explanatory statement complies with s 412(1)(a) of the Act. I note in this connection that ASIC has relieved OOH of certain disclosure requirements under reg 5.1.01(1) of the Corporations Regulations 2001 (Cth) (the Regulations). Based on the evidence put before me (see in particular Exhibit 4) I am satisfied that the explanatory statement sets out the information prescribed under reg 5.1.01(1) and Sch 8 Pt 3 of the Regulations, modified as allowed by ASIC. 36 I am satisfied that ASIC has had reasonable opportunity to examine the proposed scheme and the explanatory statement, and to make submissions in respect thereof (although it has expressed the desire not to make submissions at the present time). 37 I note that Graham Jones, the chairman and a non-executive director of OOH, has consented to act as chairman of the scheme meeting and that Brian Lindsay Bickmore, also a non-executive director of OOH, has consented to act as chairman in the event that Mr Jones is either unwilling or unable to do so. 38 I note the specific recommendations of those directors of OOH who have provided recommendations. I also note the opinions expressed by Grant Thornton, to which I have referred. 39 I am satisfied that the scheme is appropriate to be put forward to scheme shareholders for their consideration. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.