Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (Act):
(a) the First Plaintiff convene and hold a meeting of the ordinary shareholders of TNK (other than (i) Mathew Graeme Edwards, (ii) Isamax Pty Ltd ACN 156 123 241 as trustee for the Edwards Family Trust, (iii) Seuss Tpywg Pty Ltd ACN 608 961 637 as trustee for EDSUPER, and (iv) any other entity that is controlled by Mathew Graeme Edwards that hold Think Group securities (together, MGE Entities)):
(i) to consider and, if thought fit, to approve (with or without modification) the scheme of arrangement (TNK Scheme) proposed to be made between the First Plaintiff and the ordinary shareholders of TNK (other than the MGE Entities), the terms of which are set out in Annexure A to these orders; and
(ii) to be held at 11.00am (Melbourne time) on Wednesday, 29 September 2021 and to be conducted electronically through an online platform (which is to be accessed in accordance with the instructions included in the Notice of TNK Scheme Meeting which is set out in Appendix 6 to the Explanatory Booklet (Notice of TNK Meeting) and is to be sent to TNK shareholders in accordance with Order 2 below),
(TNK Scheme Meeting); and
(b) the Second Plaintiff convene and hold a meeting of the ordinary shareholders of TND (other than the MGE Entities):
(i) to consider and, if thought fit, to approve (with or without modification) the scheme of arrangement (TND Scheme) proposed to be made between the Second Plaintiff and the ordinary shareholders of TND (other than the MGE Entities), the terms of which are set out in Annexure B to these orders; and
(ii) to be held at 11.30am (Melbourne time), or as soon as reasonably practicable after the conclusion or adjournment of the TNK Scheme Meeting (whichever time is later) on Wednesday, 29 September 2021 and to be conducted electronically through an online platform (which is to be accessed in accordance with the instructions included in the Notice of TND Scheme Meeting which is set out in Appendix 7 to the Explanatory Booklet (Notice of TND Meeting) and is to be sent to TND shareholders in accordance with Order 2 below),
(TND Scheme Meeting),
(together the TNK Scheme Meeting and the TND Scheme Meeting are referred to in these Orders as the Scheme Meetings, and together the ordinary shareholders of TNK and TND are referred to in these Orders as the Think Group Securityholders).
The Scheme Meetings be convened by sending on or before 30 August 2021:
(a) in the case of Think Group Securityholders who have elected to receive notices of meetings electronically by email (Email Securityholders), an email substantially in the form at Annexure 'MGK28' to the affidavit of Mark Gregory Kerr dated 16 August 2021 (Kerr Affidavit), which includes access by an embedded link to the following documents:
(i) an electronic copy of a document substantially in the form of the explanatory booklet, a draft of which is at Exhibit 'BFO9' (Explanatory Booklet) to the affidavit of Bart Oude-Vrielink dated 17 August 2021 (Second Oude-Vrielink Affidavit), which contains, among other things, the Notice of TNK Scheme Meeting and Notice of TND Scheme Meeting; and
(ii) a personalised single combined Proxy Form in respect of both the TNK Scheme Meeting and the TND Scheme Meeting, substantially in the form at Annexure 'MGK10' to the Kerr Affidavit (Proxy Form); and
(iii) in the case of Think Group Securityholders who hold more than 5% of Think Group Securities, and therefore could be a 'relevant foreign resident' for the purposes of subdivision 14-D to schedule 1 to the Taxation Administration Act 1953 (Cth), a Relevant Foreign Resident Declaration Form, substantially in the form at Annexure 'MGK11' to the Kerr Affidavit (Foreign Resident Declaration Form);
(iv) an online portal or website that is accessible by Email Securityholders and which enables Email Securityholders to lodge their proxy for the Scheme Meetings and voting instructions online; and
(b) in the case of Think Group Securityholders who are not Email Securityholders (Postal Securityholders) and whose registered address is in Australia, the following documents by prepaid post addressed to the relevant addresses recorded in the Plaintiffs' register:
(i) a letter, substantially in the form at Annexure 'MGK29' to the Kerr Affidavit, which contains the address of a website which enables Postal Securityholders to access a copy of the Explanatory Booklet (Postal Securityholder Letter);
(ii) a personalised Proxy Form;
(iii) in the case of Think Group Securityholders who hold more than 5% of Think Group Securities, and therefore could be a 'relevant foreign resident' for the purposes of subdivision 14-D to schedule 1 to the Taxation Administration Act 1953 (Cth), a Relevant Foreign Resident Declaration Form;
(iv) a reply paid envelope for the return of that Think Group Securityholder's Proxy Form; and
(v) for Think Group Securityholders receiving a Relevant Foreign Resident Declaration Form, a reply paid envelope for the return of that Think Group Securityholder's Relevant Foreign Resident Declaration Form; and
(c) in the case of Postal Securityholders and whose registered address is outside Australia, the following documents by prepaid airmail post addressed to the relevant addresses recorded in the Plaintiff's register:
(i) a Postal Securityholder Letter;
(ii) a personalised Proxy Form;
(iii) in the case of Think Group Securityholders who hold more than 5% of Think Group Securities, and therefore could be a 'relevant foreign resident' for the purposes of subdivision 14-D to schedule 1 to the Taxation Administration Act 1953 (Cth), a Relevant Foreign Resident Declaration Form;
(iv) a self-addressed envelope for the return of that Think Group Securityholder's Proxy Form; and
(v) for Think Group Securityholders receiving a Relevant Foreign Resident Declaration Form, a self-addressed envelope for the return of that Think Group Securityholder's Relevant Foreign Resident Declaration Form.
If it comes to the attention of the Plaintiffs that any email dispatched to Email Shareholders in accordance with Order 2(a) above has returned an undeliverable or undelivered receipt for an Email Shareholder's nominated email address, then the Plaintiffs shall dispatch to that Email Shareholder within a reasonable time thereafter the specified documents in accordance with Order 2(b) or 2(c) above (as applicable).
Subject to these Orders and pursuant to sections 411(1) and 1319 of the Act:
(a) the Scheme Meetings are to be convened using the notices of meeting substantially in the form contained in Appendix 6 to the Explanatory Booklet for the TNK Scheme Meeting and substantially in the form contained in Appendix 7 to the Explanatory Booklet for the TND Scheme Meeting respectively without specifying a physical location for the meetings; and
(b) the Scheme Meetings are to be held and conducted electronically, without any physical meeting of Think Group Securityholders being held, pursuant to the arrangements for attending, participating and voting described in the Notice of TNK Scheme Meeting and the Notice of TND Scheme Meeting respectively relating to the appointment and revocation of proxy and attorney appointments and in respect of the effect of a Think Group Securityholder's attendance at a Scheme Meeting on a proxy or attorney appointment by that Think Group Securityholder;
(c) at the TNK Scheme Meeting, ordinary shareholders of TNK (other than the MGE Entities) are to be permitted to submit questions, and at the TND Scheme Meeting, ordinary shareholders of TND (other than the MGE Entities) are to be permitted to submit questions, in the manner provided on the website, subject to the functions and powers of the Chair under the Plaintiffs' Constitutions as applicable and the general law;
(d) notwithstanding clause 64.8 of the First Plaintiff's Constitution and section 249Y(3) of the Act, the appointment of a proxy in respect of the TNK Scheme Meeting shall not be revoked or suspended by the appointing ordinary shareholder of TNK (TNK Appointor) attending and taking part in the TNK Scheme Meeting, but if the TNK Appointor votes on a resolution at the TNK Scheme Meeting, the proxy is not entitled to vote as the TNK Appointor's proxy on that resolution and any such vote must not be counted in the results of the relevant poll; and
(e) notwithstanding clause 65.8 of the Second Plaintiff's Constitution and section 249Y(3) of the Act, the appointment of a proxy in respect of the TND Scheme Meeting shall not be revoked or suspended by the appointing ordinary shareholder of TND (TND Appointor) attending and taking part in the TND Scheme Meeting, but if the TND Appointor votes on a resolution at the TND Scheme Meeting, the proxy is not entitled to vote as the TND Appointor's proxy on that resolution and any such vote must not be counted in the results of the relevant poll.
Except to the extent addressed by these Orders, the Scheme Meetings be:
(a) convened, held and conducted in accordance with the provisions of Part 2G.2 of the Act that apply to members of the company, and the provisions of the Plaintiffs' Constitutions as applicable that are not inconsistent with these Orders and Part 2G.2; and
(b) convened, held and conducted as if rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Rules) does not apply.
Voting on the resolutions to approve the TNK Scheme and TND Scheme is to be conducted by way of a poll.
The Proxy Form will be valid and effective if, and only if, it is completed and delivered in accordance with its terms by is 11.00am (Melbourne time) on Monday, 27 September 2021.
Mr Mark Gregory Kerr, or failing him, Mr Joe Leonard Dicks be the Chairperson of the Scheme Meetings.
The Chairperson of the Scheme Meetings shall have the power to adjourn the Scheme Meetings to such time, date and place as he considers appropriate.
Compliance with rule 3.4 and Form 6 of the Rules is dispensed with.
The Plaintiffs publish in The Australian newspaper once on or before 29 September 2021 a notice of hearing substantially of Annexure C to these Orders.
The further hearing of the Originating Process in respect of the Plaintiffs' application pursuant to subsection 411(4), and if necessary subsection 411(6), of the Act for approval of the TNK Scheme or TND Scheme (as applicable), is adjourned to a hearing before the Honourable Justice O'Callaghan on 6 October 2021 at 9.00am (Melbourne time) or as soon thereafter as the business of the Court allows.
There be liberty to apply.
Pursuant to rule 39.34 of the Federal Court Rules 2011 (Cth), these orders be entered forthwith
[2]
The Court notes that the Australian Securities and Investments Commission (ASIC) was provided with at least 14 days' notice of the hearing of this application.
A. The Court is satisfied that ASIC has had a reasonable opportunity to:
(i) examine the terms of the proposed schemes of arrangement to which the application relates and a draft explanatory statement relating to the proposed schemes of arrangement; and
(ii) make submissions to the Court in relation to the proposed schemes of arrangement and the draft explanatory statement.
B. The Court notes the letters dated 17 August 2021 from ASIC to MinterEllison, the solicitors for the Plaintiffs, at Annexure 'BFO7' to the Second Oude-Vrielink Affidavit.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Annexure A
TNK Scheme
Annexure B
TND Scheme
Annexure C
Notice of Second Court Hearing
Notice of hearing to approve arrangement
TO all the members of Think Childcare Limited (ACN 600 793 388) (TNK) and Think Childcare Development Limited (ACN 635 178 166) (TND) (collectively, Think Group)
TAKE NOTICE that at 9.00am (Melbourne time) on 6 October 2021 the Federal Court of Australia (Victoria District Registry) at Owen Dixon Commonwealth Law Courts Building, 305 William Street, Melbourne, Victoria 3000 will hear an application by Think Group seeking the approval of an arrangement between TNK and its members and an arrangement between TND and its members if agreed to by a resolution to be considered at two meetings of such members held on Wednesday, 29 September 2021 held as virtual meetings pursuant to the electronic arrangements described in the notices convening such meetings, with the first meeting commencing at 11.00am (Melbourne time) and the second meeting commencing at 11.30am (Melbourne time) or at the conclusion or adjournment of the first meeting (whichever time is later).
If you wish to oppose the approval of the arrangement, you must file and serve on Think Group 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 Think Group at its address for service by 5.00pm (Melbourne time) on 5 October 2021.
The address for service of Think Group is: c/o MinterEllison, Level 20, Collins Arch, 447 Collins Street, Melbourne VIC 3000, Attention: Bart Oude-Vrielink. The notice of appearance and affidavit must also be sent by email to bart.oude-vrielink@minterellison.com.
Note that the hearing of Think Group's application on 6 October 2021 may be conducted by teleconference or virtually (online only). For information on how to attend the hearing, visit https://www.fedcourt.gov.au/ or telephone the Federal Court of Australia (Victoria District Registry) on (03) 8600 3333 Monday to Friday between 8.30am and 5.00pm (Melbourne time).
[3]
Introduction
1 After a hearing on 18 August 2021, I made the orders set out above. These are my reasons.
2 By originating process filed on 29 June 2021, Think Child Limited (TNK) and Think Childcare Development Limited (TND) (together, Think Group) sought orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) to convene two meetings.
3 The first meeting is of the ordinary shareholders of TNK, other than Mathew Edwards (the Chief Executive Officer and Managing Director of Think Group) and entities that he controls which hold Think Group securities (MGE Entities), for the purpose of considering a proposed scheme of arrangement (TNK Scheme) between TNK and its ordinary shareholders, other than the MGE Entities, and orders pursuant to s 411(4)(b) of the Act (and, if necessary, s 411(6)) approving the TNK Scheme.
4 If implemented, the TNK Scheme will result in Busy Bees Early Learning Australia Pty Ltd (Busy Bees) acquiring all the ordinary shares in TNK, other than those held by the MGE Entities.
5 The second meeting is of the ordinary shareholders of TND (other than the MGE Entities), similarly for the purpose of considering a proposed scheme of arrangement (TND Scheme) between TND and its ordinary shareholders, other than the MGE Entities, and orders pursuant to s 411(4)(b) (and, if necessary, s 411(6)) approving the TND Scheme.
6 If implemented, the TND Scheme will result in FEL Child Care Developments Pty Ltd (FEL), Busy Bees' subsidiary, acquiring all the ordinary shares in TND, other than those held by the MGE Entities.
7 The TNK Scheme and the TND Scheme (together, the Schemes) are interdependent schemes of arrangement under Part 5.1 of the Act.
8 Think Group proposes to hold the meetings online on Wednesday, 29 September 2021, with the TNK Scheme meeting commencing at 11am Melbourne time, the TND Scheme meeting at 11:30am, and a combined general meeting of TNK and TND at 12 noon. In the event that any meeting continues past the scheduled commencement of the subsequent meeting, Think Group proposes that the subsequent meeting will commence upon the adjournment of the earlier meeting.
9 Think Group further proposes that Mr Mark Kerr, the Chairman and a non-executive independent director of Think Group, will chair each meeting unless he is unable to do so, in which case Mr Joe Dicks, a non-executive independent director of Think Group, will do so.
[4]
Background
10 Mr Edwards established the childcare business operated by TNK in 2012. TNK was listed on the ASX in October 2014. On listing, TNK owned and operated 30 early childhood education and care centres in Australia. As at 30 June 2021, there were 73 centres operating and two development greenfield sites.
11 TND was established in 2019 "to operate as an 'in-house' development/incubator" of centres that would "reduce TNK's reliance on third party incubators" and "provide a pipeline to TNK of purpose-built centres". The shares in TNK and TND were stapled to form the listed stapled entity now known as Think Group. As at 30 June 2021, TND had a "pipeline" of 36 centres, comprising 16 purpose-built "Nido" branded centres at various stages of trade-up and a "pipeline" of 20 centres, in turn comprising 15 purpose-built Nido centres at various stages of development and five sites suitable for future developments.
[5]
Proposed transaction
12 Since November 2020, Think Group received several proposals for its acquisition.
13 On 16 November 2020, Think Group announced that it had received a non-binding indicative proposal from Alceon Group Pty Ltd (Alceon) to acquire Think Group for $1.35 per Think Group Security (being one TNK share stapled to one TND share).
14 On 23 November 2020, Think Group announced the receipt of a competing initial, non-binding indicative proposal from Busy Bees to acquire Think Group for $1.75 per Think Group Security. Revised non-binding indicative proposals were then received from Alceon for $1.75 per Think Group Security (announced 24 December 2020) and Busy Bees for $2.10 per Think Group Security (announced 20 January 2021).
15 On 6 April 2021, Think Group announced that it had received a further revised conditional, non-binding indicative proposal from Busy Bees to acquire Think Group for $3.20 per Think Group Security and that an independent committee of Think Group's board had determined to grant a short period of exclusivity to Busy Bees for it to finalise due diligence and further negotiate transaction documents to determine if a binding proposal could be presented to Independent Securityholders (being all Think Group securityholders, except the MGE Entities).
16 Think Group agreed to further extend the exclusivity period on two occasions in May 2021 to conclude the negotiation of binding transaction documents and to obtain ASIC joint bid relief.
17 On 16 June 2021, following consideration of the further revised Busy Bees proposal by the independent committee of Think Group's board, Think Group entered into an Implementation Agreement with Busy Bees under which it is proposed that Busy Bees will acquire 77.85% of the issued capital of TNK and FEL will acquire 77.85% of the issued capital of TND by way of the two interconditional Schemes.
18 Concurrently with the Schemes, it is proposed that Busy Bees will acquire 22.15% of the TNK shares from Mr Edwards under the MGE Share Acquisition Agreement, for the same consideration that Independent Securityholders will receive for their TNK shares under the Schemes.
19 Mr Edwards and the MGE Entities have agreed to acquire the development business of Think Group and management rights in respect of 35 Nido centres (MGE Acquisition), pursuant to six separate agreements (MGE Agreements). As part of the MGE Acquisition, the 77.85% of the TND Shares acquired by FEL under the TND Scheme will, on the implementation date, be transferred to Mr Edwards for nominal consideration.
20 If the Schemes are approved and implemented:
(a) the MGE Share Acquisition Agreement and the MGE Agreements will complete;
(b) Busy Bees will own 100% of the TNK Shares;
(c) Mr Edwards and the MGE Entities will own 100% of the development arm of the Think Group business (including the TND Shares); and
(d) Think Group will be delisted from the ASX shortly after the implementation date.
21 The consideration under the Schemes totals $3.20 per Think Group Security, less the amount of any permitted dividend declared and paid by Think Group after the date of the Implementation Agreement.
22 If the Schemes are approved and implemented, Independent Securityholders who hold Think Group Securities on both the scheme record date (expected to be 14 October 2021) and the permitted dividend record date (expected to be 11 October 2021) will receive a total cash payment of $3.20 per Think Group Security comprising:
(a) a fully franked special dividend of up to $0.24 per Think Group Security held on the permitted dividend record date (Permitted Dividend); and
(b) the Scheme Consideration provided by Busy Bees to each Independent Securityholder for the transfer to Busy Bees of each Think Group Security as at the scheme record date, being not less than $2.96 per Think Group Security ($3.20 per Think Group Security less any Permitted Dividend).
23 Under the Implementation Agreement, Think Group is permitted to declare and pay the following dividends:
(a) a fully franked cash interim dividend of up to $0.08 per Think Group Security, which will not reduce the Scheme Consideration (Think Group proposed to announce this on 18 August 2021, the day of the hearing); and
(b) the Permitted Dividend, which will reduce the Scheme Consideration.
24 Think Group proposes that each Think Group securityholder on the interim dividend record date (25 August 2021) will receive the interim dividend of $0.08 per Think Group Security, with payment of the interim dividend to be made on 2 September 2021.
25 The Think Group boards' decision to declare the interim dividend and the Permitted Dividend will be subject to the requirements of the Act, the availability of retained earnings and franking credits and, in relation to the Permitted Dividend, the ATO's views on the Permitted Dividend being a fully franked dividend.
26 The interim dividend is not conditional on the Schemes and, if declared, will be paid irrespective of whether the Schemes proceed, whereas the Permitted Dividend will only be paid if the Think Group boards so determine and if the Schemes proceed.
27 The total cash payment of $3.20 per Think Group Security payable to Independent Securityholders represents:
(a) a 52% premium to Busy Bees' previous non-binding revised indicative proposal of $2.10 per Think Group Security (announced on 20 January 2021); and
(b) an 83% premium to Alceon's previous revised non-binding indicative proposal (announced on 24 December 2020) and Busy Bees' previous non-binding initial indicative proposal (announced on 23 November 2020) of $1.75 per Think Group Security.
[6]
The MGE Acquisition
28 As noted above, as part of the agreed terms for proposing the Schemes, if the Schemes proceed, Mr Edwards, through the MGE Entities, will acquire TND and certain other assets for nominal consideration pursuant to the MGE Agreements.
29 Mr Edwards will acquire:
(a) the 77.85% of the TND Shares acquired by Busy Bees (and/or its subsidiaries) under the TND Scheme (so that Mr Edwards and the MGE Entities will own 100% of the issued share capital of TND);
(b) the Nido Early School Centre in Franklin, ACT;
(c) the head office function and specified non-income producing assets of TNK (including assumption of the head office and related employee costs and associated liabilities of TNK and entities that hold leases for TNK development greenfield sites);
(d) 100% of the issued share capital of Think Childcare Services Pty Ltd; and
(e) the Nido brand and all associated intellectual property rights,
together, the Think Rump.
30 Simultaneously with the sale of the Think Rump, a management contract will commence between Nest Management Pty Ltd (controlled by Mr Edwards) and Busy Bees Australia Operations Pty Ltd (a Busy Bees subsidiary), which provides for an annual management fee of $100,000 per centre under management. At the commencement date of the contract, there will be 35 centres under management and covered under the agreement.
31 Mr Edwards and the MGE Entities will pay nominal consideration for the Think Rump ($300 in aggregate) because the acquisition of the Think Rump is accompanied by Mr Edwards and the MGE Entities assuming all corporate and overhead costs and associated liabilities of the development business of Think Group, apart from TND's existing bank facility of approximately $13 million (to be paid out at completion by Busy Bees) and certain accrued entitlements of transferring employees (to be paid out at completion by TNK). The costs and liabilities include those associated with:
(a) operating and developing the TND portfolio (which as at 13 August 2021 comprised 18 centres and 18 greenfield sites), including associated capital requirements;
(b) operating the historically loss-making Nido Franklin Centre;
(c) the trade-up of two of TNK development greenfield sites; and
(d) maintaining the majority of Think Group head office employees and assets.
32 Think Group securityholders will be asked to approve the MGE Acquisition at the combined general meeting, because the MGE Acquisition, if completed, will constitute:
(a) the provision of a financial benefit by Think Group to a related party (Mr Edwards and the MGE Entities) for the purposes of Chapter 2E of the Act;
(b) a transaction involving a "person in a position of influence" (Mr Edwards and the MGE Entities) for the purposes of ASX Listing Rule 10.1;
(c) a provision of a benefit in connection with the retirement of a person who has held executive office for the purposes of s 200B and Listing Rule 10.19; and
(d) a provision of a benefit in connection with the transfer of property of the company to a person who has held executive office for the purposes of s 200C.
33 Think Group securityholders will also be asked to approve the "unstapling" of the Think Group Securities at the general meeting, which is necessary to facilitate the MGE Acquisition. The unstapling will only be effective if the Schemes proceed.
[7]
Statutory framework
34 The statutory framework relating to schemes of arrangement involves a three stage process:
(a) the hearing of an application to the court for orders to convene a meeting or meetings (s 411(1));
(b) the holding of the meeting or meetings (s 411(4)(a)); and
(c) the hearing of an application to the court for an order to approve the scheme (ss 411(4)(b) and 411(6)).
35 The court's discretion to make an order under s 411(1) is enlivened if:
(a) a compromise or arrangement is proposed between a Part 5.1 body and its members (or any class of them);
(b) application for the order is made in a summary way by the body;
(c) 14 days' notice of the hearing of the application has been given to ASIC (or such lesser period as the court or ASIC permits); and
(d) the court is satisfied that ASIC has had a reasonable opportunity to:
(i) examine the terms of the proposed compromise or arrangement to which the application relates and a draft explanatory statement relating to the proposed compromise or arrangement; and
(ii) make submissions to the court in relation to the proposed compromise or arrangement and the draft explanatory booklet.
See, by way of example only, Kidman Resources Limited, in the matter of Kidman Resources Limited [2019] FCA 1226; (2019) 375 ALR 760 at [22].
36 In relation to criteria (c) and (d), counsel tendered four letters from ASIC, each dated 17 August 2021. Two of these were indication of intent letters in respect of each Scheme, which noted that the 14 day notice requirement had been satisfied in each case, and that ASIC was of the view that it had had a reasonable opportunity to examine the terms of each Scheme and the draft explanatory statements, and to make submissions to the court. ASIC also said that it did not propose to appear to make submissions, or intervene to oppose either of the Schemes at the first hearing.
37 I am satisfied that the criteria set out above have been met and that, accordingly, the court's discretion to convene the scheme meetings is enlivened.
[8]
Should the discretion be exercised?
38 As to whether it is proper for the court to exercise that discretion, the court must be satisfied:
(a) that the scheme is fit for consideration by the proposed meeting in the sense that it is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the court would be likely to approve it on the hearing of a petition which is unopposed; and
(b) that members are to be properly informed as to the nature of the scheme before the scheme meeting.
39 I had the benefit of detailed written and oral submissions by Mr DFC Thomas SC on behalf of the plaintiffs. These submissions raised the following features of the Schemes:
(a) the terms of the Schemes;
(b) funding of the Scheme Consideration;
(c) performance risk;
(d) the exclusivity provisions;
(e) the break fee and the reverse break fee;
(f) performance rights;
(g) the Permitted Dividend and the associated question of financial assistance; and
(h) appointor structure approval resolutions.
40 There are no matters arising from those submissions that require explanation in these reasons, other than to note the explanation given by Grant Thornton for its conclusion that the MGE Acquisition was "not fair" to Think Group securityholders but was nevertheless still "reasonable". In its independent report, Grant Thornton explained as follows:
Whilst the nominal consideration payable by MGE Entities lies right at the bottom of our selected value range, we have concluded that the MGE Acquisition is NOT FAIR as in our opinion there is optionality value in the portfolio which is not able to be captured in our valuation assessment which should always allow … the MGE Entities to recover something greater than A$nil from Think Rump due to the following:
• There is an opportunity for a more expedited and severe corporate costs reduction than factored into our valuation assessment to right-size the business and maximise profit if the financial performance is not consistent with [m]anagement's expectations in particular under the negative value cases under Scenario 1.
• Think Group will receive the [m]anagement [f]ee of c. A$3.5 million per annum for the first three years of operations which will assist greatly in reducing the burden of the corporate costs until the business achieves the required scale to support its cost structure or in the case [m]anagement opts for a more severe and immediate reduction of the corporate costs transferred by the [Think] Group.
• As at 30 June 2021, the business had 16 trading centres with an average occupancy level of c. 56.9%. This average occupancy level is not far away from the 75% threshold occupancy for mature centres. At that point in time, the MGE Entities will have a viable and profitable alternative to sell the portfolio at multiple on or around 4.0x EBITDA before corporate costs and crystallise a significant return even after redundancies and realisation expenses.
• The portfolio also includes several centres in construction or in advanced development as at 30 June 2021. Considering the level of due diligence that the [Think] Group undertakes before committing to an [agreement for lease] and the level of experience and know-how of the sector of Mathew Edwards and his team, significant value could be realised from this portfolio of centres once construction is completed and the centres start trading over the next 18 months.
…
We have concluded that the MGE Acquisition is REASONABLE to the Independent Securityholders.
In assessing the reasonableness of the MGE Acquisition, we have considered the following.
• The MGE Acquisition and the Schemes are interdependent. If the MGE Acquisition is not approved, one of the condition[s] precedent for the Schemes will not be met and the [p]roposed [t]ransaction will not proceed. The Independent Securityholders will forego the opportunity to receive the Scheme Consideration which is in excess of our assessment of the fair market value of the [Think] Group and it includes some special value only available to Busy Bees and a limited number of other purchasers.
• Whilst we have concluded that the MGE Acquisition is not fair for the reasons outlined above, there are a number of plausible scenarios where the value of Think Rump is negative or A$nil. Under these circumstances, the MGE Acquisition would be fair.
• Alceon, which is not able to pursue a similar transaction structure given the lack of a large existing childcare business in its portfolio, confirmed that it is supportive of the Schemes and that it intends to vote in favour of the Schemes. The Schemes cannot be implemented without the MGE Acquisition proceeding.
• There are significant operational and financial risks in [the] Think Rump business immediately after completion. The business is expected in CY22 (i.e. the first full year of operations) to incur a loss on a pro-forma basis of between A$(1.8 million) and A$(5.4 million) (depending on the growth profile adopted) if the corporate costs structure transferred from the [Think] Group is not materially altered. Whilst Mathew Edwards may be able to realise the value of the Think Rump business assessed in our valuation assessment, this is by no means without significant risks.
…
After considering the abovementioned quantitative and qualitative factors, Grant Thornton Corporate Finance has concluded that the MGE Acquisition is NOT FAIR BUT REASONABLE to the Independent Securityholders in the absence of a superior alternative proposal emerging.
(Emphasis in original.)
41 Grant Thornton's independent expert report is included in the explanatory booklet to be distributed to Think Group securityholders, registered by ASIC, and released to the ASX. I am therefore satisfied that the details of the MGE Acquisition have, in any case, been adequately disclosed to Think Group securityholders, including the Independent Securityholders, such that they have been properly informed as to the nature of the Schemes, including the MGE Acquisition, before the Scheme meetings.
42 For the above reasons, I was satisfied that each Scheme is of such a nature and of such terms that, if they achieve the statutory majorities at the Scheme meetings, the court would be likely to approve both Schemes. For those reasons, I made the orders convening the two meetings set out above.
I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.
[9]
Associate:
Dated: 30 August 2021
SCHEDULE OF PARTIES
VID 344 of 2021
First Interested Party: MATHEW GRAEME EDWARDS
Second Interested Party: BUSY BEES EARLY LEARNING AUSTRALIA PTY LTD
Third Interested Party: FEL CHILD CARE DEVELOPMENTS PTY LTD