FEDERAL COURT OF AUSTRALIA

Wridgways Australia Limited, in the matter of Wridgways Australia Limited [2010] FCA 1187

IN THE MATTER OF WRIDGWAYS AUSTRALIA LIMITED (ABN 82 079 887 728)

REASONS FOR JUDGMENT

Introduction

1                                             This is the first Court hearing of an application to approve a scheme of arrangement (“Scheme”) between Wridgways Australia Limited (“Wridgways”), which is a public company listed on the ASX, and its shareholders.  Wridgways provides residential and commercial removal services. 

Outline of Scheme

2                                             The background to the Scheme is that on 20 September 2010 Wridgways announced that it had entered into a Scheme Implementation Agreement with Santa Fe Holdings Limited (“Santa Fe”) under which it proposed that an Australian wholly owned subsidiary of Santa Fe will acquire all of the issued shares in Wridgways by way of a scheme of arrangement. 

3                                             The wholly owned Australian subsidiary which will acquire the shares if the Scheme is approved is Santa Fe Moving and Relocation Services Australia Pty Limited.

4                                             If the Scheme is approved, Wridgways shareholders will receive for each Wridgways share held by them $2.80 less the cash amount of any special dividend paid by Wridgways prior to the acquisition.  The proposal values the total issued shares in Wridgways at $89.6 million. 

Discretionary special dividend

5                                             At the time of the announcement of the proposal, Wridgways shareholders were entitled to receive the full benefit of a fully franked dividend of 11 cents per share, which was announced on 19 August 2010.  The dividend was paid to shareholders on 6 October 2010. 

6                                             If a discretionary special dividend is paid then the cash amount of the dividend will reduce the price per share payable by Santa Fe under the Scheme, but all shareholders will receive the same aggregate cash amount from the two sources, that is to say the Scheme consideration and the discretionary special dividend.  If the discretionary special dividend is not declared, then the shareholders will receive the Scheme consideration in full of $2.80 per share. 

Independent expert’s valuation

7                                             The directors appointed BDO Securities (NSW-Vic) Pty Limited (“BDO”) as the independent expert to express an opinion on whether or not the acquisition of the Wridgways shares by Santa Fe is fair and reasonable and in the best interests of Wridgways shareholders. 

8                                             BDO valued Wridgways shares at 16 September 2010 at between $2.60 and $3.11 per share.  The valuation was conducted on a “cum dividend” basis and the valuation has to be adjusted in order to reflect that fact.  I will refer again briefly to the independent expert opinion of BDO later. 

9                                             BDO has concluded that the consideration payable to Wridgways shareholders by Santa Fe is fair and reasonable.  BDO has also concluded that the acquisition is in the best interests of Wridgways shareholders. 

10                                          Based on the conclusions of the independent expert and in the absence of a superior proposal, the directors of Wridgways will unanimously recommend that Wridgways shareholders vote in favour of the Scheme.

Deal protection clauses

11                                          In the course of this morning’s application, I raised with counsel for Wridgways an issue relating to the possible anti‑competitive effects of the provisions in the Scheme Implementation Agreement, which contain what are commonly described as “deal protection clauses”.  Those provisions are contained in clause 9 of the Scheme Implementation Agreement. 

12                                          The provisions include a “no shop” and a “no talk and no due diligence” clause in a form which commonly appears in Scheme documents.  There is also a fiduciary carve‑out provision in the usual form in clause 9.3. 

13                                          The provision which concerned me was that which is contained in clauses 9.6 and 9.7. 

14                                          Clause 9.7 contains a provision which entitles Santa Fe to a right of last offer.  I will set out the terms of the provision in full:

Bidder’s right of last offer

If the Target gives notice to the Bidder under clause 9.6(b)(ii), the Bidder will have the right, but not the obligation, at any time during the period of 5 Business Days following receipt of such notice, to make an offer to the Target that delivers a benefit to Target Shareholders that is at least equal to that of the Competing Proposal (Counterproposal), and if the Bidder makes a Counterproposal, the Target and the Target Board must consider it in good faith and may communicate it to the Rival Bidder. For the purposes of this clause 9.7, each successive modification of a Rival Bidder’s Competing Proposal will constitute a new Competing Proposal. [Bold in original].

15                                          The concern that I raised with counsel was that which is referred to in the Australian Government Takeovers Panel Guidance Note 7 - Lock-Up Devices at [16].  The Panel referred to the possible effect of restrictions which may be anti‑competitive, and which may give rise to unacceptable circumstances under the Corporations Act 2001 (Cth).  In particular, at [16], the Panel stated that where the bidder has, as in the present case, a right to match any competing bid, such a right will be less anti‑competitive if the competing bidder has a reasonable opportunity after the original bidder has matched its bid to increase its offer. 

16                                          I have come to the view that the effect of clause 9.7 is not to offend the statement made by the Panel.  I note, in particular, that in Re APN News & Media Limited (2007) 63 ACSR 400 (“Re APN News”) at [26], Lindgren J observed that the terms of the relevant agreement provided that, if the target received a superior competing proposal during the exclusivity period, the bidder was to be allowed a period of three business days in which to match it by a counter proposal. 

17                                          That clause seems to be to similar effect to the provisions of clause 9.7 in this case, save that clause 9.7 contains a five‑day period.  Lindgren J made no adverse comment about the effect of the clause in Re APN News, but his Honour, at [55] of his reasons for judgment, set out his views as to the evidence which would be desirable on an application under s 411(1) to be adduced to satisfy the Court that the relevant provisions, including a break fee provision, would not be likely to coerce offeree shareholders into agreeing to a Scheme or to deter companies from making a competing offer. 

18                                          I am satisfied in the present case that the evidence is generally in accordance with the views expressed by Lindgren J in Re APN News. 

19                                          I have evidence from Mr Weir, who is a director of Wridgways, which deals with the negotiations held with Santa Fe in relation to the break fee and no shop, no talk and no due diligence clauses.  The evidence is to the effect that the provisions were negotiated in arm’s length commercial negotiations.  Also Mr Weir states his belief that the deal protection clauses do not operate against the interests of Wridgways’ shareholders, and it was in their interests that the directors of Wridgways agree to include the deal protection clauses in the Scheme Implementation Agreement to secure Santa Fe’s execution and its agreement to implement the Scheme.  Mr Weir has spoken to each of the other directors of Wridgways who have confirmed that they share his views on this question. 

20                                          The particular concern which I raised with Mr Oakes SC was the possibility that clause 9.7 imposes a time constraint upon any competing bidder, so as to deter it from engaging in a competitive bidding process.  However, having regard to what Lindgren J said in Re APN News and to another issue to which I will refer below, I do not consider that there is such an anti-competitive effect.

21                                          It seems to me that the process contemplated by clause 9.7, including the provision which enables successive modifications of a rival bidder’s competing proposal to be dealt with, has an overall effect which is pro-competitive.

22                                          As Mr Oakes submits, the practical effect of any such process, if it were to come about, would be that it would be contrary to the fiduciary duties of the directors to ignore any such competing proposal.  Thus, even though the clause does not say so expressly, it is sufficient to say that, as a practical matter, any rival bidder would have a reasonable opportunity to match or exceed a matching proposal made by Santa Fe.

23                                          Further, Mr Oakes referred me to the decision of Barrett J in Re Citect Corporation Limited (2006) 56 ACSR 663.  The effect of the approach taken by his Honour in that case seems to be that if there is a modified proposal, even one which increases the consideration payable to shareholders, the matter would need to be dealt with at a further meeting. 

24                                          It may be that there is another view, namely that any increased offer being plainly enough for the benefit of the shareholders, the matter could be covered by supplementary disclosure. 

25                                          ASIC’s Regulatory Guide 60 deals with the question of supplementary disclosure.  ASIC’s ordinary practice is to require 10 days’ notice for shareholders to consider such supplementary documentation.  This also suggests that, as a practical matter, the provisions of clause 9.7 do not offend the approach which has been taken in earlier decisions to deal protection measures of this type, nor as I have said does it appear to be contrary to the approach outlined by the Takeovers Panel in Guidance Note 7.

Share valuation

26                                          I referred earlier to the report of BDO.  That report sets out the methodology adopted by BDO which valued the shares on two alternative bases. 

27                                          One was future maintainable earnings, and the other was an ASX valuation. 

28                                          The assessment which BDO gave of the value, which included a premium for control, was at a range of $2.60 to $3.11.  BDO showed its comparison upon the basis of the consideration determined on a cum dividend basis but, even allowing for the necessary adjustment, the consideration is within the range. 

29                                          It is true that the proposed consideration is lower than the high end of the range.  However, it is well established that matters such as this are for the commercial judgment of the shareholders and, ordinarily, the court does not usurp the views expressed by the shareholders.

conclusion

30                                          I am otherwise satisfied, for the reasons referred to in Mr Oakes’s written opening submissions, which I will mark MFI1, that all of the necessary evidence is before me in accordance with the approach taken by Gyles J in Re Orion Telecommunications Limited [2007] FCA 1389 at [5]. 

31                                          Accordingly, I propose to make orders in terms of the draft orders handed up to me.

Associate:

Dated:         27 October 2010