FAIR AND REASONABLE - SCHEME ARRANGEMENTS (Courtesy McCullough...

FAIR AND REASONABLE - SCHEME ARRANGEMENTS (Courtesy McCullough Robertson) - the link to the full article is shown at the end of this post, and is very informative.

The work that "Big T" Taurean has done, must be considered, and possibly evidential in the 'so called' expert in making determination.

Fair and reasonable
A scheme is generally considered to be “fair” if the price offered for the shares is greater than the determined market value of the shares. If the expert considers the scheme to be “fair”, it can be deemed to be “reasonable” in the circumstances.
Earlier this year, Coca-Cola delayed its $9 billion scheme of arrangement to purchase Amatil when better-than-expected sales figures impacted its valuation and cast doubt on whether the independent expert would find Coca-Cola’s offer price to be “fair”.

Not fair, but reasonable
As the test for fairness is rather binary and based on valuation, you may find yourself in a situation where the expert has concluded that your proposed scheme is “not fair”. As the expert’s independence remains paramount, it is not possible to manage or negotiate any valuation reached by the expert, although they will take into consideration any additional factual information which may affect the valuation and potentially whether they consider the scheme to be “fair”. In many cases, the conclusion may be a simple function of (a) not being able to apply comparable methodologies to both the bidder and the target (especially unlisted or illiquid shares); (b) an insufficiency of data; or (c) a target asset may involve elements of risk or speculation such that there is an inability to confidently ascribe a valuation.RG111 also sets out the criteria for an expert to assess whether the proposed scheme is “reasonable”, even if it is “not fair”, which includes: the other party’s existing holding in the target; the liquidity of the market for the target’s securities; the likely market price if the scheme was unsuccessful; and the value to an alternative purchaser and likelihood of another offer being made.
The guidance therefore clearly allows for situations where the scheme may be considered to be “not fair but reasonable”. ASIC notes that it is still open for an expert to conclude that such schemes are still in the best interests of shareholders, but the expert must clearly state in the report that the consideration is not equal to or greater than the value of the shares. The report must also set out the reasons which led the expert to conclude that, notwithstanding this valuation, it is in shareholders’ best interests to vote in favour of the scheme.

Not fair and not reasonable
Where the expert finds that the proposed scheme is neither fair nor reasonable, they cannot conclude that the scheme is in the best interests of shareholders. One example of this is the failed acquisition of ASX-listed cannabis company Creso in 2019, where the scheme was terminated by mutual agreement following a supplementary report by the independent expert, which concluded that the deal was “neither fair nor reasonable”.

How do you mitigate unfairness?
ASIC are looking for a balanced approach in assessing the advantages and disadvantages of a scheme in the scheme booklet so will likely take a pejorative view of documents which fail to adequately disclose unfavourable factors such as a finding of unfairness by an expert. In short, the way to mitigate the risk is not to suppress that information, but address it in context with the other factors to be considered. If the independent expert concludes that a scheme of arrangement is “not fair”, this is not necessarily fatal to the success of the proposed scheme. Provided that the scheme booklet clearly sets out: the reasons why the scheme is considered not fair; the basis for that assessment (including the analysis adopted by the expert); and the reasons why, in the opinion of the expert, the scheme is still in the best interests of the shareholders to approve it, then the Court is generally satisfied that shareholders will be able to determine whether the “unfairness” is a sufficient reason to vote against the scheme.


https://www.mccullough.com.au/2021/07/06/my-scheme-of-arrangement-is-not-fair-what-now-2/