Rural Press Limited, in the matter of Rural Press Limited [2007] FCA 314

Federal Court of Australia|2007-03-08|Before: Fairfax AM, Lindgren J

Pursuant to subs 411(1) of the Corporations Act 2001 (Cth) ('the Act'): (a) the Plaintiff, Rural Press Limited ('Rural Press'), convene a meeting ('Preferred Scheme Meeting') of the holders of preferred shares in Rural Press, other than the holders of Excluded Shares ('Preferred Shareholders'), for the purpose of considering and, if thought fit, agreeing to a scheme of arrangement (with or without modification) proposed to be made between Rural Press and the Preferred Shareholders ('Preferred Scheme'), the terms of which are contained in Annexure 'C' to the scheme booklet which is Exhibit P1 in this proceeding ('Scheme Booklet'); (b) the Preferred Scheme Meeting be held at 10.00 am (Sydney time) on 5 April 2007 at the Sofitel Wentworth Hotel, 61-101 Phillip Street, Sydney, NSW, 2000; (c) Rural Press convene a meeting ('Ordinary Scheme Meeting') of the holders of ordinary shares in Rural Press, other than the holders of Excluded Shares ('Ordinary Shareholders') for the purpose of considering and, if thought fit, agreeing to a scheme of arrangement (with or without modification) proposed to be made between Rural Press and the Ordinary Shareholders ('Ordinary Scheme'), the terms of which are contained in Annexure 'B' to the Scheme Booklet; (d) the Ordinary Scheme Meeting be held at 10.00 am (Sydney time) on 19 April 2007 at the Sofitel Wentworth Hotel, 61-101 Phillip Street, Sydney. (e) John B Fairfax AM or, failing him, Timothy Vincent Fairfax, or failing both, any other Non-Executive Director of Rural Press, act as Chairman of the Preferred Scheme Meeting and the Ordinary Scheme Meeting (collectively 'the Scheme Meetings'); (f) the Chairman have the power to adjourn the Scheme Meetings for such time that the Chairman considers appropriate; (g) at the Preferred Scheme Meeting, a person will be entitled to one vote for each Rural Press preferred share they are registered as holding at 7.00 pm on 3 April 2007; (h) at the Ordinary Scheme Meeting, a person will be entitled to one vote for each Rural Press Ordinary Share they are registered as holding at 7.00 pm on 17 April 2007; (i) the Explanatory Statement comprising the Scheme Booklet (other than Annexures 'E' and 'F' thereto) be approved; (j) on or before 6 March 2007, there be: (i) in the case of each Ordinary and Preferred Shareholder who has a registered address in Australia, dispatched by prepaid post addressed to the relevant address as recorded in the Rural Press register of members ('Register') as at 1 March 2007; and (ii) in the case of each Ordinary and Preferred Shareholder who has a registered address outside Australia, dispatched by prepaid airmail or air courier addressed to the relevant address as recorded in the Register as at 1 March 2007; or (iii) in either case, personally served: (1) a document substantially in the form of the Scheme Booklet (which includes the Explanatory Statement); (2) proxyforms for the Preferred Scheme Meeting and the Ordinary Scheme Meeting substantially in the form of Exhibit P2 and Exhibit P3 in this proceeding; (3) Consideration Election Forms for the Preferred Scheme Meeting and the Ordinary Scheme Meeting substantially in the form of Exhibit P4 in this proceeding; (4) an envelope addressed to Computershare Investor Services Pty Limited. (k) the time by which the Preferred Shareholders must return their proxy forms for the Preferred Scheme Meeting be 10.00 am (Sydney time) on 4 April 2007; (l) the time by which Ordinary Shareholders must return their proxy forms for the Ordinary Scheme Meeting be 10.00 am (Sydney time) on 18 April 2007.

Annexure A Form 6 Notice of Hearing to Approve Arrangements TO all creditors and members of Rural Press Limited ABN 47 000 010 382 (Rural Press) TAKE NOTICE that at 9.15 am on 23 April 2007, the Federal Court of Australia at Law Courts Building, Queens Square, Sydney NSW 2000 will hear an application by Rural Press seeking the approval of: (a) an arrangement between Rural Press and its preferred shareholders as proposed by a resolution passed by the meeting of preferred shareholders held on 5 April 2007; and (b) an arrangement between Rural Press and its ordinary shareholders if agreed to by resolution to be considered, and, if thought fit, passed (with or without modification) by the meeting of ordinary shareholders to be held at the Sofitel Wentworth Hotel, 61-101 Phillip Street, Sydney, NSW, 2000 on 19 April 2007 at 10.00 am (Sydney time). If you wish to oppose the approval of either or both of the above arrangements, you must file and serve on Rural Press a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Rural Press at its address for service by no later than 5.00 pm on 22 April 2007. The address for service of Rural Press is, c/o Deacons, Lawyers, 1 Alfred Street, Circular Quay, NSW 2000 (Reference : Lindsay Houghton).

Annexure B Form 6 Notice of Hearing to Approve Arrangement TO all creditors and members of Rural Press Limited ABN 47 000 010 382 (Rural Press) TAKE NOTICE that at 9.15 am on 23 April 2007, the Federal Court of Australia at Law Courts Building, Queens Square, Sydney NSW 2000 will hear an application by Rural Press seeking the approval of an arrangement between Rural Press and its ordinary shareholders if agreed to by resolution to be considered, and, if thought fit, passed (with or without modification) by the meeting of ordinary shareholders to be held at the Sofitel Wentworth Hotel, 61-101 Phillip Street, Sydney, NSW, 2000 on 19 April 2007 at 10.00 am (Sydney time). If you wish to oppose the approval of the above arrangement, you must file and serve on Rural Press a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Rural Press at its address for service by no later than 5.00 pm on 22 April 2007. The address for service of Rural Press is, c/o Deacons, Lawyers, 1 Alfred Street, Circular Quay, NSW 2000 (Reference : Lindsay Houghton).

Company Secretary IN THE FEDERAL COURT OF AUSTRALIA

IN THE MATTER OF RURAL PRESS LIMITED (ABN 47 000 010 382)

General 1 The plaintiff, Rural Press Limited ('Rural Press'), proposes two schemes of arrangement: one between it and the holders of preferred shares in its capital, and the other between it and the holders of ordinary shares in its capital. At the first court hearing on 26 February 2007 Rural Press sought orders under s 411(1) of the Corporations Act 2001 (Cth) ('the Act') that it convene meetings of those shareholders to consider, and if thought fit, to agree to, the respective schemes. I made the orders sought, and these are my reasons for doing so. 2 Rural Press is an Australian regional and agricultural newspaper publishing and printing company. Its securities are listed by the Australian Stock Exchange Limited ('ASX'). 3 I will call the two schemes the 'Preferred Scheme' and the 'Ordinary Scheme' respectively, and both of them, simply, 'the Schemes'. Similarly, I will use the expressions 'Preferred Shares' and 'Ordinary Shares' and 'Preferred Shareholders' and 'Ordinary Shareholders'. 4 Under the Schemes, the Preferred Shares and Ordinary Shares in Rural Press, other than any 'Excluded Shares' (see [7] below) will be transferred to Fairfax Media Limited ('Fairfax') for either one of two considerations at the option of the shareholder. One form of consideration, Option A, takes the form of two shares in Fairfax plus $3.30 in cash for each Preferred or Ordinary Share. The other form of consideration, the Option B consideration, takes the form of 2.3 shares in Fairfax plus cash of $1.80 for each Preferred or Ordinary Share. It will be noted that the same two options are available to Preferred Shareholders and Ordinary Shareholders, that is to say, there is no distinction according to whether the shares in Rural Press being transferred are Preferred Shares or Ordinary Shares. 5 As at 8 February 2007, the share capital of Rural Press comprised 118,880,965 Ordinary Shares and 81,041,649 Preferred Shares. 6 As at 10 August 2006, Marinya Media Pty Limited, a company associated with Fairfax interests, held 53.44 percent of the Ordinary shares and 35.23 percent of the Preferred Shares. It is by far the largest Ordinary Shareholder and Preferred Shareholder. 7 The Excluded Shares are any Preferred Shares or Ordinary Shares held by Fairfax or by its related body corporates. There are no Excluded Shares at present. 8 Fairfax operates newspaper and magazine publishing businesses, together with on-line operations in both Australia and New Zealand. Its securities are also listed by the ASX. 9 The maximum cash component of the consideration under the Schemes is $667.5 million. Fairfax intends to fund the cash component through an existing financing facility that it has with the ANZ Banking Group ('ANZ') and the Commonwealth Bank of Australia ('CBA'). 10 Both Schemes require Fairfax to satisfy its obligation to provide the cash component on the business day prior to the 'Implementation Date', by depositing into a trust account operated by Rural Press as trustee for the Preferred Shareholders and Ordinary Shareholders, cleared funds in an amount equal to the aggregate amount of the cash component payable under the Schemes. Rural Press is to hold the amount so deposited on trust for the Preferred Shareholders and Ordinary Shareholders (any interest on the amounts deposited, less bank fees and other charges, are, however, to be to Fairfax's account). 11 Fairfax is to satisfy its obligation to provide the scrip component of each Scheme consideration by entering the details of the Preferred Shareholders and the Ordinary Shareholders in the register of members of Fairfax on the Implementation Date, and despatching to them the relevant holding statements, and share certificates or equivalent documentation, representing the total numbers of shares in Fairfax issued to them. 12 There will be separate Scheme meetings. The Preferred Scheme Meeting will be held on 5 April 2007 and the Ordinary Scheme Meeting a fortnight later on 19 April 2007. If the Preferred Shareholders do not agree to the Preferred Scheme, Fairfax is to make a takeover bid under Ch 6 of the Act comprising offers to purchase all of the Preferred Shares, conditional on:

the Ordinary Scheme becoming effective, that is to say, being agreed to by the required statutory majority of the Ordinary Shareholders and approved by the Court; and
the expiry of five business days after the day on which the Ordinary Scheme has become effective. The consideration which Fairfax must offer Preferred Shareholders under the takeover bid is the same as that which it will have offered to them under the Preferred Scheme. 13 The proposed Schemes will result in Rural Press becoming a wholly owned subsidiary of Fairfax. The Schemes will not proceed, however, if the Ordinary Scheme is not agreed to, by the Ordinary Shareholders, even if the Preferred Scheme is agreed to by the Preferred Shareholders.

Merger Implementation Deed 14 The proposed Schemes arise from a Merger Implementation Deed ('MID') between Fairfax and Rural Press entered into on 6 December 2006. The MID was amended on 23 February 2007. By the MID, Fairfax and Rural Press have undertaken to take steps towards implementation of the merger. 15 The MID provides, among other things: (a) for certain conditions precedent to the obligations of the parties, including the obtaining of regulatory approvals, and, in particular, the Australian Competition and Consumer Commission's not opposing the transaction; (b) that the Ordinary Scheme will be subject to, and conditional upon, the Preferred Scheme becoming effective, or Fairfax despatching takeover bid offers to the Preferred Shareholders, and that the Preferred Scheme will be subject to and conditional upon the Ordinary Scheme becoming effective, and the expiry of five business days after the date on which the Ordinary Scheme has become effective; (c) that Fairfax undertakes to Rural Press, both in the latter's own right and as trustee for each Preferred Shareholder and Ordinary Shareholder, in consideration of the transfer to Fairfax of the Rural Press Preferred and Ordinary Shares in accordance with the Schemes, that Fairfax will provide the Scheme consideration to each Ordinary and Preferred Shareholder; (d) that if the Preferred Shareholders do not approve the Preferred Scheme, Fairfax will offer to acquire the Preferred Shares under a takeover bid in accordance with Ch 6 of the Act as mentioned earlier; (e) that, subject to the approval of the Board of Directors of Rural Press, Rural Press must pay Special Dividends of no more than $0.57143 per Ordinary Share and $0.62858 per Preferred Share; (f) that in the period to the Implementation Date Rural Press may not, without Fairfax's prior written consent, pay or declare any dividend other than the Special Dividends just mentioned and an interim dividend of no more than $0.30 per Ordinary Share and an interim dividend of no more than $0.33 per Preferred Share; (g) for the payment by Rural Press to Fairfax and by Fairfax to Rural Press, of a 'Break Fee' of $10 million in certain circumstances, including, in the former case, a failure of the Ordinary Shareholders to agree to the Ordinary Scheme and, in the latter case a failure by Fairfax to make a takeover bid if the Preferred Shareholders do not agree to the Preferred Scheme; and (i) that Fairfax undertakes to repay a certain debt facility of Rural Press on the Implementation Date (see [24] below).

Deeds Poll 16 The obligations of Fairfax under each Scheme are supported by separate Deeds Poll given by it in favour of each Preferred and Ordinary Shareholder, although, as noted at [19] below, a shareholder will not be left to the remedy of suing on the Deed Poll for payment of the cash component of the consideration.

Recommendation by directors of Rural Press 17 The Board of Directors of Rural Press unanimously recommends that, in the absence of a superior proposal, the Preferred and Ordinary Shareholders vote in favour of the respective Schemes. The directors who hold such shares, or on whose behalf they are held, intend to vote in favour of the relevant Scheme in the absence of any superior proposal.

Independent experts' reports 18 Importantly, Deloitte Corporate Finance Pty Limited ('Deloitte'), an independent expert appointed by the Board of Rural Press to assess the Schemes, has prepared an 'Independent Expert's Report', in which Deloitte concludes that the Schemes are fair and reasonable, and in the best interests of the Preferred and Ordinary Shareholders, in the absence of a superior proposal. There is also an 'Investigating Accountant's Report' prepared by Ernst & Young. That firm states that it has reviewed the accuracy of the extraction of the historical financial information concerning Rural Press and Fairfax in the Scheme Booklet, together with the accuracy of the compilation of the merged group combined pro-forma historical financial information, also in the Scheme Booklet. Ernst & Young states that nothing has come to its attention that would cause it to believe that the information has not been properly extracted from publicly available historical financial information, and, in the case of the merged group, that the combined pro-forma historical financial information has not been properly compiled.

Performance risk 19 There is no risk of a failure of performance by Fairfax, because the provision for payment on the business day prior to the Implementation Date and for the registering of Rural Press shareholders in the Register of Members on the Implementation Date, eliminate the possibility that Scheme Shareholders may have ceased to own their shares in Rural Press before receiving the Scheme consideration, and be left to suing Fairfax for it: cf Re KAZ Group Ltd [2004] FCA 738 at [4], [5]; Re Tempo Services Ltd (2005) 53 ACSR 523 at [5], [6]; Re SFE Corporation Ltd (2006) 59 ACSR 82 at [4]; Re Brambles Industries Ltd (2006) 59 ACSR 501 at [9].

Ineligible foreign shareholders 20 It is common in schemes of arrangement for special provision to be made for foreign shareholders. The reason is that there are restrictions in certain foreign countries making it impractical or unlawful for residents in those countries to receive a new issue of shares. Rather than attempting to identify the position in each foreign country in which any Preferred Shareholder and any Ordinary Shareholder may reside, those who have devised the Schemes have included special provisions for 'Ineligible Overseas Shareholders'. In substance, the Fairfax shares that would otherwise have been issued to them will be allotted to a nominee appointed by agreement between Rural Press and Fairfax then sold by the nominee who will remit the proceeds of sale to Rural Press, which will, in due course, remit the proceeds, after deduction of applicable brokerage, costs, taxes and charges, to the respective Ineligible Overseas Shareholders. Otherwise, Ineligible Overseas Shareholders still enjoy both Option A and Option B. In particular the cash components of those options are to be paid directly to them.

Recent declarations of dividends 21 On 8 February 2007, the Board of Rural Press declared a fully franked interim dividend for the six months ended 31 December 2006 of $0.30 for each Rural Press Ordinary Share, and $0.33 for each Rural Press Preferred Share. The interim dividend, totalling approximately $60 million, is due to be paid on 2 March 2007. 22 Also on 8 February 2007, the Board of Rural Press declared fully franked special dividends of $0.57143 for each Rural Press Ordinary Share, and $0.62858 for each Rural Press Preferred Share (see (e) and (f) of the MID, outlined above at [15]). The anticipated date for payment of the Special Dividends is 8 May 2007. 23 The declaration of the interim dividend and the special dividends amounts to a material change in the financial position of Rural Press since 31 December 2006, being the date of the last published financial statements of Rural Press. However, the change is disclosed in the Scheme Booklet.

Repayment of credit facility 24 Rural Press has a facility of $350 million with Westpac Banking Corporation, which will become repayable on the Implementation Date. Fairfax has covenanted in the MID to repay this facility on that date. It intends to fund the payment from a syndicated facility to be arranged by CBA and ANZ. This matter is also disclosed in the Scheme Booklet.

Financial assistance 25 Section 260A(1) of the Act allows the giving of financial assistance by a company for acquiring shares in the company or a holding company of it, only in the circumstances stated in paras (a), (b) or (c) of s 260A(1). The condition referred to in s 260A(1)(a) is that the giving of the assistance does not materially prejudice the interests of the company or its shareholders, or the company's ability to pay its creditors. 26 By reason of payment of the Special Dividends, Rural Press is giving assistance to Fairfax to acquire shares in Rural Press. The Board of Rural Press has determined that the giving of this financial assistance is in the best interests of its shareholders and of Rural Press itself, and will not materially prejudice its ability to pay its creditors. Disclosure of this matter and of the determination by the Board of Rural Press is also set out in the Scheme Booklet. 27 The assistance is not prejudicial to the interests of Rural Press or its members because the recipients of the Special Dividends are the members of Rural Press. Moreover, they are given the opportunity to vote on the proposed Schemes after that full disclosure. Nor is the assistance prejudicial to Rural Press's ability to pay its creditors. After payment of the Special Dividends (to be funded from existing borrowing facilities), the net assets of Rural Press will still be approximately $410 million, and although its borrowings will increase to approximately $342 million, Rural Press will be able to meet its financial commitments in the ordinary course, and Fairfax has undertaken to repay Rural Press's borrowings that are required to be repaid on the Implementation Date (see [24] above).

Options 28 Rural Press has issued 1,641,695 options, being options to subscribe for Preferred Shares under an Executive Option Plan. The options have become exercisable following a determination of the Rural Press Board, and written notice was given to the holders of the options of this fact on 23 February 2007. All option holders are in fact shareholders in Rural Press, and so they will be receiving the Scheme Booklet and related materials. If they exercise their options, they will be entitled to participate in the Preferred Scheme in respect of the shares issued to them in consequence of their exercise of their options.

Other matters 29 Approval is sought to a variation of the prescribed form of notice of the second court hearing to permit the advertisement to be publicised prior to the date of the Ordinary Scheme Meeting. Alternative forms of order will be appropriate according to whether the Preferred Scheme will have been agreed. 30 A detailed 'due diligence' and verification process has been carried out in relation to the information contained in the Scheme Booklet. 31 The Australian Securities and Investments Commission has indicated, in accordance with its usual practice, that it does not intend to appear on the first court hearing.

Conclusion 32 It was my view that the Preferred Shareholders and the Ordinary Shareholders should have the opportunity of considering and agreeing to the Schemes. 33 For the above reasons I made orders as sought by Rural Press.

I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Counsel for the Plaintiff: Mr F Gleeson SC and Mr R Dick

Counsel for Fairfax Media Limited: Mr MJ Leeming SC

Date of Hearing: 26 February 2007

Date of Judgment: 8 March 2007

At a glance

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Decision date

Before

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Judgment (22 paragraphs)

Legislation Cited (3)

Cases Cited (1)