Provet Holdings Limited, in the matter of Provet Holdings Limited [2010] FCA 1388

Federal Court of Australia|2010-12-15|Before: Stone J

Pursuant to section 411(1) Corporations Act 2001 (Cth) (Act), the Plaintiff convene a meeting of its members, to be held on Thursday, 9 December 2010, at the office of McCullough Robertson, Level 11, Central Plaza Two, 66 Eagle Street, Brisbane, Queensland, commencing at 9 am (Scheme Meeting), for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (Scheme) (being the scheme of arrangement set forth in Exhibit 1)(Scheme Booklet).
The Scheme Booklet be approved for distribution to the members of the Plaintiff.
Garth Alexander McGilvray or, in his absence, Nigel Nichols, act as Chairperson of the Scheme Meeting.
Except for procedural motions, all voting at the Scheme Meeting be by poll as declared by the Chairperson.
The Chairperson of the meeting has the power to adjourn such meeting in his absolute discretion.
Regulations 5.6.12, and 5.6.14 to 5.6.36A, Corporations Regulations 2001 shall not apply to the Scheme Meeting.
The Plaintiff publish a notice of hearing of any application to approve the Scheme on or before Tuesday, 7 December 2010, in The Australian newspaper by an advertisement substantially in the form of Annexure A to these Orders.
The proceeding be stood over to 9 am on 15 December 2020 before Stone J for the hearing of any application to approve the scheme of arrangement.
Liberty to restore on two days notice.
These orders be entered forthwith. ANNEXURE A PROVET HOLDINGS LIMITED ACN 092 593 774 NOTICE OF HEARING TO APPROVE COMPROMISE OR ARRANGEMENT TO all the creditors and members of Provet Holdings Limited ACN 092 593 774 (PVT). TAKE NOTICE that at 9.00 am on 15 December 2010, the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, New South Wales will hear an application by PVT seeking the approval of a compromise or arrangement between PVT and its members as proposed by a resolution to be considered and, if thought fit, passed (with or without modification) by the meeting of the members of PVT to be held on Thursday, 9 December 2010. If you wish to oppose the approval of the compromise or arrangement, you must file and serve on the Plaintiff a notice of appearance in the appropriate form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the Plaintiff at its address for service at least one day before the date fixed for the hearing of the application. The address for service of the Plaintiff is McCullough Robertson, Level 11, Central Plaza Two, 66 Eagle Street, Brisbane, Queensland 4001. Name of person giving notice or of person's legal practitioner: Peter Stokes, McCullough Robertson Lawyers - 07 3233 8714. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1358 of 2010

IN THE MATTER OF PROVET HOLDINGS LIMITED (ACN 092 593 774) PROVET HOLDINGS LIMITED (ACN 092 593 774)

JUDGE: STONE J DATE: 15 DECEMBER 2010 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application under s 411(1) of the Corporations Act 2001 (Cth). The plaintiff, Provet Holdings Limited, seeks an order that the plaintiff convene a meeting of its shareholders for the purpose of considering, and if thought fit, agreeing (with or without modification) to approve the Scheme of Arrangement (Scheme). The plaintiff also seeks directions as to the conduct of the meeting. At the conclusion of the first Court hearing on 4 November 2010 I made the orders sought by the plaintiff. These are my reasons for making those orders. 2 The plaintiff, Provet Holdings Limited (PVT), is a public company listed on the Australian Stock Exchange (ASX) and provides a range of veterinary products as well as a range of products and services relevant to the management of veterinary practices. They include the provision of software, online ordering systems, website design and support and staff training. 3 The Scheme proposed between PVT and its shareholders is for the acquisition of PVT by Pelican Acquisition Company Pty Ltd (Pelican) which is a wholly owned subsidiary of Henry Schein Inc (HSI), a public company listed on the NASDAQ. After the acquisition PVT will be a subsidiary of Pelican and HSI and will no longer be listed on the ASX. 4 PVT has 43,546,212 ordinary fully paid shares on issue. In relation to the proposed Scheme the options open to shareholders are simple. They may (a) sell or transfer their shares to someone other than Pelican; (b) decide that the share price of $2.14 per share offered under the Scheme is adequate and vote in favour of the Scheme; (c) decide that the proposal is unattractive and vote against the Scheme; or (d) do nothing. 5 The Scheme Booklet describes the Scheme in detail and outlines why the directors of PVT have recommended that shareholders vote in favour of the proposed Scheme. The Booklet also lists reasons why shareholders may disagree with the director's recommendation. The Scheme Booklet also lists answers to "key questions" and includes information regarding the options open to shareholders.

Independent Expert's Report 6 The directors of PVT appointed KPMG Corporate Finance (Aust) Pty Limited (KPMG) as an independent expert to assess the Scheme. A copy of KPMG's report is annexed to the Scheme Booklet. The report concludes that the Scheme is fair and reasonable and in the best interests of PVT shareholders in the absence of a superior proposal. KPMG assessed the underlying value of PVT as in the range of $91.9 million to $98 million equating to per share value of between $2.05 to $2.19 ex-dividend using a capitalisation of earning methodology. The Report states that this methodology was thought appropriate given that the value of Provet lies in the ongoing operations of the Company and not the underlying assets. KPMG's assessment of the value of PVT incorporates a premium for 100% control of PVT. The Independent Expert Report states: When assessing the value of 100 percent of Provet, we have considered those synergies and benefits which would generally be available to a broad pool of hypothetical purchasers. We have not included the value of synergies and benefits that may be unique to Henry Schein. Accordingly, our valuation of a share in Provet has been determined regardless of the acquirer… Our assessed range for Provet, which includes a premium for control, exceeds the price at which, based on current market conditions, we would expect Provet shares to trade on the ASX, in absence of the Proposal or of any superior offer. 7 As the amount offered for each share (A$2.14) is within the range of value referred to above, KPMG concluded that the proposal was fair to shareholders. Equally important as the share price to shareholders are the funding arrangements for the funding of the Scheme Consideration. It is estimated in the Scheme Booklet that the amount required to be paid by Pelican if the Scheme becomes effective is approximately A$93.2 million. The arrangements have been accurately summarised in the Scheme Booklet as follows: HSI will provide [Pelican] with the funds required to pay the Scheme Consideration and associated transaction costs. HSI has undertaken to provide these funds to [Pelican] by a combination of equity and debt funding, … There are no provisions precedent to the provision of such funding by HSI, other than the Scheme becoming Effective. HSI has also agreed to guarantee the obligations of [Pelican] to pay the Scheme Consideration to PVT Shareholders. 8 The Scheme Booklet also gives a detailed explanation of the source of the funds to be provided by HSI and the amount of HSI's cash reserves and credit facilities.

Duty of Disclosure 9 In an application under s 411, the plaintiff has a duty of disclosure as described by Barrett J in Re Permanent Trustee Co Ltd (2003) 43 ACSR 601 at [7]: The fact that the application is ex parte is not without some significance. The absence of any defendant or contradictor sharpens the duty of the [Plaintiff]. While a case such as the present is distinguishable from one where an interlocutory injunction is sought in the absence of the defendant (in that there is here no defendant as such) I think it is fair to say that a [Plaintiff] in this kind of situation, like [a Plaintiff] ex parte for an injunction, carries the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of discretion. In accordance with this duty the plaintiff brought a number of aspects of the proposed Scheme to the attention of the Court.

Break fee 10 In particular the Merger Implementation Deed between Provet, HSI and Pelican provides for a break fee of $925,000 to be paid if the Scheme does not proceed in certain circumstances. Those circumstances do not include a majority of the Provet shareholders voting against the Scheme. In relation to the question of break fee provisions I respectfully adopt the views expressed by Lindgren J in Re APN News & Media Limited [2007] FCA 770, (2007) 62 ACSR 400 at [43]-[55].. 11 As a percentage of equity value, the amount of the break fee is less than 1% which in the light of the Takeover Panel's Guidance Note 7: Lock-up Devices is not coercive or anti-competitive. As such it is not a basis for any adverse inference to be drawn in relation to the Scheme.

'No shop' and 'no talk' provisions 12 The Deed also contains common 'no-shop' and 'no-talk' provisions. That is during a defined exclusivity period Provet must ensure that "neither it nor any of its Subsidiaries" does anything to invite, encourage or bring about a Competing Proposal as defined in the Deed; cl 12.1. Provet must also ensure that "neither it nor any of its Subsidiaries" participates in negotiations or discussions concerning a Competing Proposal; cl 12.2. There is an exception to these provisions where conformity with them would involve breach of a fiduciary duty; cl 12.4. These obligations are disclosed in the Scheme Booklet (cl 6.5).

Performance risk 13 Protection of shareholders from the risk of not receiving the consideration in exchange for the transfer of their shares is provided in the Scheme itself. Clause 5 of the Scheme provides that before 10.00am on the Implementation Date, Pelican will deposit an amount equal to the aggregate Scheme Consideration in cleared funds into a trust account to be held by Provet in trust for all the Scheme Shareholders. Subject to that consideration having been paid in accordance with cl 5, on the Implementation Date the shares will vest in Pelican on Provet delivering to Pelican a duly completed Scheme Share Transfer executed on behalf of the Scheme Shareholders, Pelican duly executing the Transfer and delivering it to Provet for registration.

Warranty by Scheme Shareholders 14 The Scheme provides that each Scheme Shareholder is deemed to have warranted that on the date of the transfer, all their shares will be "fully paid and free from all mortgages, charges, liens, encumbrances, pledges, security interests and other interests of third parties of any kind, whether legal or otherwise". Provisions of that kind are common and have not been seen to constitute a problem: APN News & Media Limited at [57]-[63]; Investa Properties Ltd [2007] FCA 1104 at [21].

Evidence necessary for a first court hearing 15 I am satisfied from the evidence before me that the requirements necessary to be proved at a first court hearing in relation to an application under s 411(1) of the Corporations Act 2001 (Cth) have been met. In particular I am satisfied that the plaintiff is a Part 5.1 body, that the proposed Scheme is an "arrangement" within the meaning of s 411, that Mr Garth McGilvray, the Chairman of Provet has consented to act as chairman of the meeting and Mr Nigel Nichols, Director and Chief Executive Officer of Provet has consented to act in his absence. 16 I am satisfied that the Scheme is bona fide and properly proposed and that ASIC has been given an opportunity to examine the proposal and adequate notice of the first Court hearing date. The plaintiff has tendered a letter dated 2 November 2010 from ASIC stating that it does not propose to appear at the first Court hearing or to oppose the Scheme at that time. 17 The factual information in the Scheme Booklet has been verified on behalf of Pelican, in the affidavit of Mark Elchonen Mlotek affirmed on 27 October 2010. Mr Mlotek is Executive Vice President, Corporate Business Development of HSI. He deposes that Pelican and HSI in conjunction with their solicitors, Baker & McKenzie have undertaken a process of verification of the Pelican/HSI information which is described in detail. Similar evidence of verification was given by Nigel Nichols, Director and Chief Executive Officer of Provet in relation to the information concerning Provet. On the basis of that evidence I am satisfied that the process of verification in each case was careful and thorough and provides an adequate basis for the deponents' respective assertions that the information in the Scheme Booklet is correct. 18 On the basis of the evidence tendered at the hearing on 4 November 2010 and for the reasons given above, I made the orders sought by the plaintiff. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

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