CORPORATIONS - scheme of arrangement - acquisition scheme of arrangement - scheme dependent on related demerger scheme of arrangement - scheme may have tax implications
Source
Original judgment source is linked above.
Catchwords
CORPORATIONS - scheme of arrangement - acquisition scheme of arrangement - scheme dependent on related demerger scheme of arrangement - scheme may have tax implications
Judgment (18 paragraphs)
[1]
Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) ("Corporations Act"):
(a) Straits Resources Limited ACN 056 601 417 ("Straits") convene a meeting ("Scheme Meeting") of the holders of ordinary shares in Straits ("Straits Shareholders"), for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between Straits and Straits Shareholders ("Scheme"), being the scheme substantially in the form of the draft contained in Annexure G of the scheme booklet containing the explanatory statement in relation to the Scheme, being Exhibit "1" in these proceedings ("Scheme Booklet").
(b) The Scheme Meeting be held at 11:00 am (Perth time) on 25 February 2011, at The Celtic Club, 48 Ord Street, West Perth, Western Australia.
(c) The Chairperson of the Scheme Meeting be Alan Good and in his absence Michael Gibson.
(d) The Chairperson appointed to the Scheme Meeting has the power to adjourn the Scheme Meeting in his absolute discretion.
(e) All voting at the Scheme Meeting be by poll as declared by the Chairperson.
(f) The explanatory statement in the Scheme Booklet for the Scheme be approved for distribution to Straits Shareholders.
(g) There be dispatched to each Straits Shareholder on the Straits register of members ("Register") (other than a shareholder referred to in paragraph (h) of these Orders, except in the circumstances described in paragraph 57 of the affidavit of Michael George Gibson affirmed on 16 December 2010):
(i) a document substantially in the form of the Scheme Booklet;
(ii) a proxy form for the Scheme Meeting; and
(iii) a reply paid (for use in Australia only) envelope addressed to Computershare Investor Services Pty Limited,
in the case of each Straits Shareholder who has a registered address in Australia, by prepaid post and, in the case of each Straits Shareholder who has a registered address outside Australia, by prepaid airmail or air courier, and in each case addressed to the relevant address set out in the Straits register of members.
(h) There be dispatched to each Straits Shareholder on the Register who in accordance with the Corporations Act has consented to receiving shareholder communications electronically, an email substantially in the form of the draft at tab 20 of exhibit "MGG-1" to the affidavit of Michael George Gibson affirmed 16 December 2010 to the nominated email address of the Straits Shareholder.
(i) Straits cause to be published on a website:
(A) the Scheme booklet including notice of the Scheme Meeting and proxy form; and
(B) a facility by which Straits Shareholders can electronically lodge a proxy online,
and cause those documents and that facility to be accessible by an electronic hyperlink given in the email referred to in paragraph (h) of these Orders.
(j) Straits place an advertisement in The Australian newspaper, substantially in the form of "Annexure A" to these Orders, on or before 25 February 2011 and Straits shall otherwise be exempted from compliance with the requirement to publish such notice following the Scheme Meeting and prior to the second court hearing for approval of the Scheme pursuant to Rule 3.4(3)(a) of the Federal Court (Corporations) Rules 2000 (Cth).
Pursuant to section 1319 of the Corporations Act, Straits be exempted from compliance with the requirements of rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) save that regulation 5.6.13 of the Corporations Regulations 2001 (Cth) shall apply to the Straits Scheme Meeting.
The proceedings be stood over to 3 March 2011 at 10:15 am before Justice Jagot for the hearing of any application to approve the Scheme.
Liberty to restore to the list.
These orders to be entered forthwith.
Annexure A
Straits Resources Limited ACN 056 601 417
Notice of hearing to approve compromise or arrangement
TO all the creditors and members of Straits Resources Limited ACN 056 601 417 (Straits).
TAKE NOTICE that at [insert time] on [insert] 2011 the Federal Court of Australia at Level 17, Law Courts Building, Queens Square, Sydney, New South Wales 2000 will hear an application by Straits seeking the approval of an arrangement between Straits and its members, if agreed to by resolution to be considered by the members of Straits at a meeting of such members to be held on 25 February 2011 at The Celtic Club, 48 Ord Street, West Perth, Western Australia at 11.00am (Perth time).
If you wish to oppose the approval of the arrangement, you must file and serve on Straits 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 Straits at its address for service at least 1 day before the date fixed for the hearing of the application.
The address for service on Straits is, c/o Corrs Chambers Westgarth, Level 36, 1 Farrer Place, Sydney, New South Wales (Reference: Stan Lewis).
Mark HandsCompany SecretaryStraits Resources Limited
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.
[2]
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION NSD 1654 of 2010
[3]
IN THE MATTER OF STRAITS RESOURCES LIMITED (ACN 056 601 417)
STRAITS RESOURCES LIMITED (ACN 056 601 417)
[4]
JUDGE: JACOBSON J
DATE: 20 DECEMBER 2010
PLACE: SYDNEY
[5]
REASONS FOR JUDGMENT
1 My reasons for judgment in this matter should be read in conjunction with the reasons which I gave in my judgment in the Demerger Scheme, matter NSD 1653 of 2010; see Straits Resources Limited, in the matter of Straits Resources Limited [2010] FCA 1466.
[6]
ANALYSIS of the acquisition scheme
2 Under the proposed Acquisition Scheme, all of Straits' issued shares will be acquired by PTT Mining, which is a wholly owned subsidiary of PTT International Company Limited ("PTT International").
3 PTT Mining is a Hong Kong proprietary company which is limited by shares and is an investment vehicle primarily focused on the conduct of coal businesses. PTT International is a wholly owned subsidiary of PTT Public Company Limited ("PTT Public Co").
4 PTT Public Co is one of the largest companies listed on the stock exchange of Thailand. It is a public company which is the holding company for a diversified group of companies engaged in oil and gas exploration and production, gas transmission and processing, coal businesses, energy trading and retail distribution segments.
5 PTT International's net assets as at 31 December 2009 were approximately $933 million. PTT Public Co's net assets as at 30 September 2010 were approximately $18.84 billion.
6 The total transaction value of the Acquisition Scheme is approximately $544 million. That is subject to a reduction of approximately $50 million if an adverse acquisition event occurs in relation to the Brunei coal exploration project prior to the second court hearing.
[7]
How the Acquisition will be Effected
7 If the Acquisition Scheme is approved and all other conditions precedent are satisfied, eligible Straits shareholders will have their shares in Straits transferred to PTT Mining, and will receive in return:
$1.72 cash for each Straits share (which they hold after the demerger); or
If an adverse adjustment event notice is received in respect of PTT Asia Pacific Mining's investment in Brunei prior to the second court hearing to the effect that the right to carry out an evaluation of coal resources and reserves has been terminated and that PTT Mining nominees on the Board of PTT Asia Pacific Mining support a proposal to withdraw from the investment, $1.56 cash for each Straits share.
8 The effect of the Acquisition Scheme, upon implementation, is that PTT Mining will become the sole shareholder in Straits, and Straits will then apply for removal of its securities from quotation on the ASX.
9 The Acquisition Scheme is recorded in an Acquisition Scheme Implementation Agreement dated 11 November 2010.
[8]
LEGAL PRINCIPLES
10 I dealt with the applicable principles in my judgment on the Demerger Scheme, and I do not propose to repeat them.
[9]
Implementation of Acquisition Scheme
11 The Acquisition Scheme is to be implemented in the following manner:
PTT Mining will provide the cash component of the Acquisition Scheme consideration to Straits before 10 am on the implementation date by depositing that amount into a trust account operated by Straits as trustee for the Straits shareholders;
On the implementation date, and subject to the obligation to deposit the cash component being complied with, all of the shares in Straits will be transferred to PTT Mining.
[10]
Deed Poll
12 The obligations of PTT Mining and PTT International under the Acquisition Scheme are dealt with by way of a Deed Poll given by PTT Mining and PTT International in favour of Straits shareholders. The Deed Poll has been executed by the parties.
[11]
Directors' and Independent Expert's Recommendations
13 The directors of Straits unanimously recommend that, in the absence of a superior proposal, Straits shareholders vote in favour of the Acquisition Scheme.
14 The independent expert, E&Y, has valued the fully paid Straits shares, after the implementation of the demerger, at between $1.41 and $1.64 per share. The consideration of $1.72 (or $1.56 if so reduced) is such that E&Y has concluded that the Scheme is fair and reasonable, and in the best interests of the Straits shareholders.
[12]
Conversion and Voting Agreements
15 I dealt with the position and rights of Standard Chartered PE in my reasons for judgment on the Demerger Scheme and I do not propose to repeat them.
[13]
Employee Share Scheme Acquisition Plan
16 A number of employees of Straits hold shares under the Straits Employee Share Scheme Acquisition Plan. The vesting conditions applicable to those shares will be satisfied if the Acquisition Scheme is approved by the court.
17 The Acquisition Scheme consideration to which participants in the Straits Employee Share Plan will be entitled will be applied firstly in repayment to Straits of any outstanding loan from Straits. Participants will therefore receive the amount by which the aggregate of the Acquisition Scheme consideration applicable to the relevant shares exceeds the amount of any outstanding loan.
[14]
Whether a Separate Class of Shareholders Created
18 For the reasons referred to in relation to the Demerger Scheme, I do not consider that the rights attaching to the Standard Chartered PE convertible notes, or the voting agreements, are class creating. Nor do I consider that the different treatment of the shareholders who will participate in the Acquisition Scheme through the Straits Employee Share Acquisition Plan is class creating.
19 This is because the employees' shares are valued in exactly the same way as the other shareholders. Their treatment is analogous to partly paid shareholders who have been considered to form one class with fully paid shareholders. This is because they are paid the same in respect of their equity as all of the other shareholders; see Re Wattyl Limited [2010] FCA 854 at [15] - [17].
[15]
Performance Risk
20 There are a number of other issues referred to in the written submissions provided to me by Mr F. Gleeson SC. The first is the "performance risk." I am satisfied that this has been dealt with by providing the appropriate safeguards in accordance with the principles stated in the authorities referred to in the written submissions. The principal authorities are Re Kaz Group Limited [2004] FCA 738, Re Tempo Services Limited (2005) 53 ACSR 523 at 524, and Re APN News & Media Limited (2007) 62 ACSR 400 at [23].
[16]
Deal Protection Provisions
21 The second issue to which attention was drawn is the issue of the "deal protection" provisions. These principles include exclusivity arrangements and a "no due diligence" restriction. The deal protection measures are subject to the usual form of fiduciary carve out referred to by Santow J in Re Arthur Yates & Co Limited (2001) 36 ACSR 758 at [9]. The same applies to the "no talk" restriction and the "no due diligence" restriction.
22 The exclusivity period expires on 30 June 2011 and is therefore for a total period of just under eight months. This seems to me to be in accordance with comparable periods in other schemes of arrangement.
23 The break fee is within the 1% guideline referred to by the Takeovers Panel in its Guidance Note 7 - Lock-Up Devices and I have evidence of the kind referred to by Lindgren J in Re APN News Media Limited (2007) 62 ACSR 400 at [55], which satisfies me that the break fee of $5.441 million is in accordance with the authorities that have dealt with that issue.
[17]
Tax Implications of the Scheme
24 The only other matter to which I need to refer is the status of certain discussions that are still underway with the Australia Taxation Office ("ATO"). The ATO is considering whether the Acquisition Scheme is being implemented by Straits for the sole or dominant purpose of obtaining a tax benefit. If so, this would result in adverse tax consequences for Straits as a result of the application of the anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act 1936 (Cth).
25 Straits anticipates that the ATO's position will be clarified by mid February 2011 and that an announcement will then be able to be made by Straits to the ASX as a result of the outcome of its discussions with the ATO. Straits therefore proposes that the Scheme Meeting be held on 25 February 2011 to allow sufficient time for the ATO to make its determination and for an announcement to be made to the ASX before the shareholders vote at the Scheme Meeting.
26 It seems to me that this is an appropriate way in which to proceed. If it should transpire that by mid February 2011 the ATO has not clarified the tax position it would be possible for Straits to open the Scheme Meeting and then adjourn it. It would, of course, in those circumstances be necessary for Straits to make further disclosure to shareholders. Disclosure would be required if the position is sufficiently clarified and probably also in the event that the position remains unclear. The usual practice is to require 10 days' notice to shareholders, and as I have said, in that event it may be necessary for Straits to make a further application to the court.
[18]
Conclusion
27 For the reasons set out above, I made the orders convening the acquisition of the Scheme Meeting which I signed and dated Friday 17 December 2010.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.