Some interesting reading below that may possibly answer your questions:
Attention, log post follows.
"A scheme to remove minority shareholders
RG 142.35 A scheme is one of a number of methods which may be used to remove minority shareholders (expulsion scheme). The general principles relating to eliminating minorities apply as much to schemes as they do to other methods, such as compulsory acquisition following a successful takeover or a selective reduction of capital. RG 142.36 The Court and ASIC will be concerned to ensure that any scheme has the informed and un-coerced approval of those who may be adversely affected by it. This is most important in an expulsion scheme where the scheme has very different effects on different classes. In deciding whether to provide a statement under s411(17)(b), register an explanatory statement, make submissions to the Court, or intervene in the proceedings of an expulsion scheme, ASIC will consider whether minority shareholders are adequately informed and fairly treated (although it was concerned with a different process, the High Court decision in Gambotto & Anor v WCP Limited & Anor (1995) 16 ACSR 1 may be a handy guide for review of fairness and disclosure in cases where minorities are to be expropriated). This consideration will involve examining whether: (a) all relevant information has been disclosed to minority shareholders; (b) the consideration to be received by minority shareholders is fair, insofar as fairness is determined by minority shareholders receiving reasonable and equal opportunity to share in the benefits which will flow to the majority shareholder by virtue of the scheme proceeding; and (c) there is equity (but not necessarily identity) in the treatment of different classes ie any differences in consideration which different classes receive are proportionate to the value of their securities or interests in the company.
RG 142.38 The explanatory statement of an expulsion scheme should disclose any available material information on the following matters: (a) the purpose or purposes of the scheme; (b) the reasons for rejecting alternative means of achieving that purpose; (c) the reasons for concluding that the consideration will be fair to those affected; (d) information regarding the current and historical market prices of the shares; (e) the net book value of the assets; (f) the value of the company both as a going concern and on liquidation; (g) any reports or appraisals prepared in relation to the scheme; (h) either possible capital gains tax implications, or advice to members to seek taxation advice; (i) any special benefit(s) that will accrue to the majority shareholder following acquisition of minority shareholders’ shares; and (j) any other material information known to the proponent or directors and relevant to making a decision on the scheme proposed. The proponent of this type of scheme will often be best placed to assist in providing this information to the company for inclusion in the explanatory statement.
RG 142.39 Frequently, the ability of the directors of the company to provide adequate independent information and advice to minority shareholders in expulsion schemes may be questioned, by minority shareholders or by the Court. This is because in most cases, the directors will be the nominees of the shareholder which is proposing the scheme in order to gain full ownership of the company. Where the adequacy or independence of information is questionable, the scheme resolution may be invalid. See Re Albert Street Properties Ltd (1997) 23 ACSR 318.
Classes of participants
RG 142.43 One area of significant concern to ASIC and the Courts is the class structure of the classes of person who are to participate in a scheme. A scheme must be considered and voted upon by each separate class of participant affected by the scheme. Proposers of schemes should look to the extensive case law on the issue. RG 142.44 ASIC is concerned to ensure that the determination of classes for voting on a scheme is fair and equitable between those classes having regard to their rights and obligations with respect to the company and the effect of the scheme on them. RG 142.45 Where a scheme does involve separate classes ASIC expects that the division of classes will be clearly specified in the scheme document and disclosed in the explanatory statement, together with an explanation of why the divisions have been drawn.
Voting
RG 142.46 The Law does not prohibit the proponent or its associates (“interested parties”) who hold target shares or target securities from voting in respect of an acquisition. However, if the vote is to demonstrate approval by the remaining shareholders: (a) the interests of interested parties should be fully disclosed; and (b) interested parties should either not vote in favour of the resolution to approve the scheme, or should vote in a separate class. Where interested parties vote in the same class as other members or creditors because they have a divergent commercial interest which falls short of requiring they meet as a separate class, voting should be by ballot and the ballot should be retained by the company, or an audited record of the voting should be retained. This will assist the Court in determining whether or not to approve the scheme.
Equality between classes of securities
RG 60.22 We consider that when there is more than one class of security in a scheme, the resolution put before each of the classes should be conditional on each other class passing the resolution put before it. In this way all members will have an equal opportunity to participate in the benefits accruing from an acquisition, and the equality principles in s602(c) will be met.
Collateral benefits
RG 60.23 Consistent with the policy behind s602(c), we consider that there should be no collateral benefits associated with any differences between the consideration offered for each class of security in the target (target security). In particular, the consideration offered for each class should be: (a) proportionate to each of the others, taking into account the differences in rights or obligations between the security classes; (b) at a similar premium, for example, to market prices where applicable; and (c) reasonable, taking into account the amounts payable on the target securities, the time value of money, the opportunities inherent in convertible target securities, or any other established criteria (such as those contained in the Takeovers Panel Guidance Note 21: Collateral benefits).
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NERVOUS ET ALL, PLEASE READ THE FOLLOWING, in regard to a crip offer
Offers of scrip
RG 60.28 Where the acquirer intends to provide securities as consideration to the holders of target securities, the holders of target securities should be provided with sufficient information about the securities to allow them to decide how they will vote on the resolutions put before them: see the requirements for a bidder’s statement detailed in s636(1)(g) and at RG 60.66–RG 60.67.
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Classes of participant
RG 60.58 A scheme must be considered and voted on by each separate class of participant affected by the scheme. RG 60.59 When a scheme involves separate classes, we expect the division of classes to be clearly specified in the scheme documents and disclosed in the explanatory statement, together with an explanation of why the divisions have been drawn. RG 60.60 We will aim to ensure that the determination of classes for voting on a scheme is fair and equitable and takes into account the rights and obligations of each class in relation to the company and the effect of the scheme on them.
The proponent of this type of scheme will often be best placed to assist in providing this information to the company for inclusion in the explanatory statement. RG 60.71 Although it was concerned with a different process, the High Court decision in Gambotto and Anor v. WCP Limited and Anor (1995) 16 ACSR 1 may provide a useful guide for reviewing fairness and disclosure in cases where minorities are to be expropriated. In relation to these issues, we will assess whether: (a) all relevant information has been disclosed to minority shareholders; (b) the consideration to be received by minority shareholders is fair, in so far as fairness is determined by minority shareholders receiving a reasonable and equal opportunity to share in the benefits that will flow to the majority shareholder if the scheme proceeds; and (c) there is equal (but not necessarily identical) treatment of different classes—that is, any differences in consideration that a class receives is proportionate to the value of its securities or interests in the company. RG 60.72 Whether the consideration is fair will depend on a number of factors such as the company’s assets and liabilities, the market value of the company’s securities, the past and likely future dividends and the nature of the corporation and its likely future. RG 60.73 For more guidance on what is ‘fair’, see Regulatory Guide 111 Content of expert reports (RG 111).
in a scheme if the required majorities of shareholders approve the acquisition, all shareholders are obliged to sell – the required majorities are: 50% of shareholders (i.e., by number) who vote must be in favour 75% of votes (i.e., shares voted) must be in favour and shareholders/votes include proxies ·· in a take-over non-accepting shareholders are only obliged to sell if the bidder reaches 90% and proceeds to a compulsory acquisition. The scheme of arrangement is often favoured because the threshold/s necessary to gain 100% of the target company may be considered easier to achieve – but others do not necessarily agree with this approach (eg, they might find it hard to get 50% of shareholders across the line even if they believe they can easily get 75% of the votes – or vice versa). But note, if the scheme is not approved – by shareholders and/or the court – then the bidder company gets nothing.
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From ALLENS ARTUR ROBINSON Lawyers
TAKEOVER Vs SCHEME
In the early days of considering a merger, we often have to advise on the relative merits of the takeover vs a scheme. There are certain transactions that are naturally suited to a scheme or takeover, such that the relative merits do not arise. For example, a top hatting scheme, which is essentially an internal re-organisation, is most appropriately effected by a scheme, while a cash bid for all the shares of the company more naturally effected by a takeover. Furthermore, a hostile or surprise bid can never be effected by a scheme of arrangement because the scheme dars S0111035743v3 150220 8.1.2003 Page 4 memorandum sent to shareholders is sent by the target company, not the bidder and the target cannot be compelled to do so while it can be compelled to issue a target statement. In a friendly merger, it does become relevant to consider the relative merits. It is inherent in the nature of the scheme that it provides more flexibility of how to structure a bid – for example, it does allow for compromises to be effected as part of the scheme and some of the more limiting rules under the takeovers code, for example, of no collateral benefits or unacceptable circumstances normally will not apply. This advantage of structuring flexibility may be weighed against a more flexible procedure in a takeover, especially with respect to intervening events. For example, it is quite common in a takeover for the bidding company to waive conditions initially set by it, if that is the commercial dynamic of the takeover. It is easier to increase bid consideration in a takeover and there is a prescribed regime for permitting this under the Act. While in a scheme, once the information memorandum is dispatched to shareholders and the meeting dates set the effect of intervening events may be harder to manage because the shareholders must be given sufficient time to consider the information relevant to their decision. The approval threshold for a bidder seeking 100% of the target is easier to satisfy under a scheme. The approval required, in addition to Court approval, is that a majority in number of shareholders attending the meeting, representing 75% of the votes cast must approve the scheme. In a scheme, silence is effectively the conscription of a yes vote. Whilst in order to get to compulsory acquisition under a takeover the bidder must obtain acceptances for 90% of the bid class. In a takeover, silence equates to a no vote. Furthermore, a scheme is an all or nothing event and once the approvals are obtained the bidder immediately gets to 100%, without having to go through the compulsory acquisition process of the Corporations Act which can take a few months to process. The control of the process is sometimes an issue of consideration for companies. A takeover is more of the bidder’s process, as it instigates the events with a bidder’s statement with the target statement issued in response. A scheme is the target’s process, as it is effected through a meeting of the target’s shareholders to approve the scheme.
TELEPHONE HELP LINES
The Financial Services Reform Act 2001 amended the Corporations Act by requiring telephone hotlines that are used in connection with takeovers to be taped. The purpose of the reform was to ensure that misleading and deceptive or cohesive behaviour does not occur when shareholders call the company for information when considering whether or not to accept the bid. In response to this legislative development, Justice Santow in the James Hardie scheme in 2001 made orders that the company record all calls made to the hotline, under a script settled by the Court and that evidence of compliance be adduced at the second Court hearing by having those tapes audited and affidavits lodged. The background to the legislative change was, we understand, the GIO takeover by AMP where concerns were raised about what was said in the hotlines. When Justice Santow was later faced with the controversial scheme of arrangement in NRMA where a factional board had differing views about the scheme, it was, from a risk perspective, quite understandable that the Court would want to ensure that statements that shouldn’t be made on those call lines were not be made.
CLASSES
One of the most difficult issues that arises in schemes is the consideration of class and whether or not the people with the right to vote on a scheme should do so separately, at separate class meetings, in order to get a clear and just vote. Before we discuss a couple of recent decisions in connection with the treatment of overseas shareholders under schemes which touches upon the issue of classes, we wish to refer to Re CMPS&F Pty Limited (1997) 24 ACSR 728. This is a sleeping judgment of Justice Santow which, although its particular facts will not arise in most scheme circumstances, has established a principle which may have an impact beyond that originally intended or envisaged.
Moving to a more recent development.
In schemes of arrangements effecting mergers, it is common practice that shareholders in certain overseas jurisdictions do not receive shares issued by under the scheme, but instead have their share entitlement cashed out and receive the cash proceeds. The reason for the different treatment is that the company is not prepared to go to the time or expense to confirm in every jurisdiction in which its shareholders may reside whether or not an offer of shares can lawfully be made under the scheme. This common practice had not raised any issue with the court for several years until Justice Santow in James Hardie asked us to make submissions about whether those overseas shareholders, being treated differently under the scheme, should meet as a separate class.
End of quotations.
Have a good weekend. It is raining here and there is nothing else that I can do outside. So, the computer is as good place as any to spend some time.
Regards.
ESG Price at posting:
77.5¢ Sentiment: None Disclosure: Not Held
