Promentum Limited ACN 003 322 512 [2007] FCA 446

REASONS FOR JUDGMENT 1 Promentum Limited (the Company) has applied to the Court under s 411 of the Corporations Act 2001 (Cth) (the Act), seeking orders for a meeting of members of the Company to be convened, for the purpose of considering a scheme of arrangement between the Company and its members. 2 The Company is one of Australia's leading print communications companies and is the largest sheet-fed print company in Australia. The Company and its subsidiaries employ approximately 700 staff servicing customers from sites in Sydney, Melbourne, Brisbane, Cairns, Townsville and Hobart. The Company's operations include commercial printing, strategic print solutions and direct mail. Since 2002, the Company has made several important acquisitions which have expanded its operations in New South Wales and Queensland. At present, the Company's market share is estimated to be 9% of the Australian sheet-fed print market, with the closest competitor estimated to have half that market share. 3 The Company currently consists of three major business entities: (1) Penfold Buscombe, which provides printing, design, direct mail, digital printing and print management services in various parts of Australia; (2) Scanlon Printing, which provides printing, design, direct mail, digital printing and print management services in Queensland; and (3) Octane Digital, which provides digital printing, small format and offset printing and design services in Queensland. The Company's service allows it to provide tailored communications solutions for corporate and government bodies in Australia. The Company's specialist services include Strategic Print Solutions, Print, Direct Mail, Digital Printing, Design, Warehousing Distribution and Outsourcing. 4 On 12 January 2007, the Company entered into a merger implementation agreement with GEON Group Australia Pty Limited (GEON). By the merger implementation agreement the Company agreed to propose a scheme of arrangement and GEON agreed to perform its obligations under the scheme. The scheme was not to become effective until each of certain conditions had been satisfied. By a deed poll made 23 February 2007 in favour of each holder of ordinary shares in the Company as at the Record Date, as that term is defined in the proposed scheme, GEON promised that it would comply with its obligations under the proposed scheme and would do all things necessary or expedient on its part to implement the scheme. 5 By the proposed scheme, GEON is to acquire all of the issued shares in the capital of the Company for a cash consideration. The consideration proposed is $2.25 per share. The directors of the Company have obtained a report from Lonergan Edwards and Associates Limited (the Expert), concerning the proposed consideration. The Expert was requested to prepare a report stating whether the proposed scheme is in the best interests of shareholders of the Company, with the intention that the report accompany the Scheme Booklet to be sent by the Company to its shareholders. 6 The Expert has valued 100% of the shares in the Company as between $1.86 and $2.13 per share. In its report dated 12 March 2007, the Expert has outlined several benefits that it considers would arise for the Company shareholders as follows: "(a) the Scheme consideration of $2.25 cash per share exceeds the top end of our assessed value range of $1.86 to $2.13; (b) the Scheme consideration contains an implied premium for control that is greater than the range of control premiums paid in takeovers generally; (c) if the Scheme does not proceed, and in the absence of an alternative offer or proposal, the price of Promentum shares is likely to trade in at a significant discount to our valuation and the Scheme consideration." 7 The Expert noted that the offer from GEON of $2.25 cash per share was the highest offer received following recent discussions with print industry participants and private equity firms. The Expert also noted that the Company's shareholders would not participate in any additional benefits available to GEON as a result of acquiring the Company, including the ability to generate cost savings or any other synergy benefits. The Expert observed, however, that insufficient detail with respect to those savings or synergies existed for them to express a view on the likelihood of achievement or the magnitude or timing of any such benefits. The Expert concluded, on balance, in light of its analysis, that the acquisition of the Company's shares by GEON under the proposed scheme is in the best interests of the Company's shareholders in the absence of a superior proposal. 8 The scheme booklet that has been promulgated and which it is intended will be sent to the members of the Company also contains, in addition to an overview of Promentum and details of the proposed scheme and a copy of the Expert's report, an overview of GEON. Since the consideration to be paid is cash, it may well be that the material relating to GEON is of marginal relevance. It is possible, of course, that some shareholders would like to know the identity of the entity to whom they are selling their shares. On the whole, however, the general structure of the purchaser is really of no great concern in the context of an acquisition such as this. 9 The Company has an Employee Share Option Plan under which two types of option have been granted to selected eligible employees. The two types of options are respectively referred to as EPS Options and TSR Options. Both are subject to specified vesting conditions and performance hurdles in relation to the earnings per share growth and total shareholder return of the Company. Vested options may not be exercised until the third anniversary of the grant date in respect of the EPS Options and the fifth anniversary of the grant date in relation to the TSR options. However, under the terms of the respective agreements, the Company may waive or vary the exercise conditions of the options to allow for accelerated exercising of options. Under deeds between the Optionholders and the Company, each option agreement has been varied with the effect that the vesting hurdles have been removed and the vesting time has been brought forward so that the options will vest on the date that the Court approves the proposed scheme, if it does so. 10 The deeds vary the option agreements so that, if the scheme proceeds, Optionholders may either exercise their options or elect to have their options cancelled. If Optionholders choose to exercise their options, the Optionholders will pay to the Company the exercise price of the options, and receive shares. The Optionholders will then be shareholders and will participate in the proposed scheme in the same manner as other shareholders. If Optionholders have not, before the Effective Date, exercised their options, their options will be cancelled, and on the Implementation Date of the Scheme, they will be paid an amount equal to $2.25 less the exercise price per option. The Optionholders will not be parties to the scheme except to the extent that they become shareholders pursuant to the exercise of options. 11 The Company has agreed to pay a reimbursement fee to GEON in the sum of $1,270,000 if the proposed scheme does not proceed by reason of certain matters. Those arrangements accord with guidelines published by the Takeovers Panel and details of them are disclosed in the scheme booklet proposed to be provided to shareholders of the Company. By letter of 14 March 2007, the Australian Securities and Investments Commission (the Commission) has indicated to the solicitors of the Company that the Commission does not currently propose to appear to make submissions, or intervene to oppose the proposed scheme between the Company and its shareholders. 12 I note the affidavits of David Anthony Wiggins, the Company Secretary and Chief Financial Officer of the Company sworn 8 March and 14 March 2007; the affidavit of Mark James Rimmer, a Director of GEON, sworn 14 March 2007; the affidavit of Craig Edwards, a director of the Expert, sworn on 13 March 2007; the affidavits of John Michael Churchill and Ian McClure Wightwick, respectively sworn on 7 and 9 March 2007 consenting to act as Chairman of the proposed meeting and the affidavits of Laura Elizabeth Hartley sworn 9 March and 13 March 2007. 13 I am satisfied from the material before me that if the proposed scheme receives the statutory majority at the proposed meeting of the Company's shareholders, the Court is likely to approve it, if an application for such an order is made by the Company. Accordingly, I consider that it is appropriate to accede to the Company's application to convene a meeting of members for the purposes of considering the proposed scheme of arrangement. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.