FEDERAL COURT OF AUSTRALIA

David Jones Limited, in the matter of David Jones Limited (No 2) [2014] FCA 720

THE COURT ORDERS THAT:

1.    Pursuant to section 1319 of the Corporations Act 2001 (Cth):

(a)    there be dispatched to each ordinary shareholder of the Plaintiff (Scheme Shareholders), on or before 4 July 2014, a document substantially in the form of Exhibit 6 (Supplementary Disclosure).

(b)    the Supplementary Disclosure be sent:

(i)    in the case of Scheme Shareholders who have nominated an electronic address for the purposes of receiving notices of meeting and proxy forms from the Plaintiff (via t-he on-line "Investor Centre" maintained by Computershare Investor Services Pty Limited), by email to the nominated electronic address of the Scheme Shareholder; and

(ii)    otherwise, to each other Scheme Shareholder by hand at, or prepaid post or courier to, the address of that Scheme Shareholder as set out in the register of members of the Plaintiff.

2.    There be liberty to apply.

3.    These orders be entered forthwith.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    At a hearing on 2 July 2014 I made orders under s 1319 of the Corporations Act 2001 (Corporations Act) pursuant to an application made on that day by the plaintiff (David Jones) in relation to despatch of supplementary disclosure to David Jones shareholders in connection with a Scheme Meeting scheduled to be held on 14 July 2014. I gave very brief ex tempore reasons and indicated that I would provide expanded written reasons subsequently.

Background

2    On 22 May 2014 I made orders under s 411(1) for David Jones to convene a Scheme Meeting then proposed to be held on 30 June 2014. I approved despatch of a Scheme Booklet which contained a notice of the Scheme Meeting and explained the proposed Scheme under which Woolworths Holdings Limited (WHL) would acquire all of the shares in David Jones for a consideration of $4 per share: Re David Jones Limited [2014] FCA 530. Words defined in those reasons or in the Scheme Booklet bear the same meaning in these reasons.

3    David Jones’ first application for directions under s 1319 was made on 19 June 2014. David Jones wished to: (1) defer the Scheme Meeting to 14 July 2014; (2) despatch supplementary disclosure to shareholders; and (3) defer the date for determining eligibility to vote at the scheme meeting until 12 July 2014. I made those orders and a letter dated 20 June 2014 was despatched to David Jones shareholders.

4    David Jones took this course after Australian Retail Investments Pty Limited lodged a substantial holding notice on 18 June 2014 confirming that entities associated with Mr Solomon Lew hold 9.89% of David Jones’ issued shares. Entities associated with Mr Lew are involved in a range of activities with a focus on the retailing sector; these include interests in other ASX listed entities. For ease of reference, I will refer to Mr Solomon Lew and entities associated with him as Mr Lew.

Country Road

5    On 24 June 2014, WHL announced that it would make a bid for all of the shares in Country Road Limited (Country Road) which it does not already own at a price of $17 per share and that the bid will be conditional (among other things) on the Scheme proposed by David Jones being approved and taking effect (Country Road Bid).

6    Country Road is registered in Australia and its shares are listed for quotation on the ASX. A subsidiary of WHL holds 87.88% and Mr Lew holds 11.8% of the issued shares. WHL made a takeover bid for Country Road in 1997 under which it offered $2 per share. At that time Mr Lew held approximately 10% of the shares in Country Road. He did not accept the offer so WHL could not reach the compulsory acquisition threshold of 90% with the result that WHL could not achieve 100% ownership of Country Road. Since then there have been a number of public disputes between WHL and Mr Lew about the strategic direction of Country Road.

Best and final offer statements

7    On 30 June 2014, WHL announced that the offer of $4 per David Jones share is its best and final offer in the absence of a Competing Proposal. On the same day WHL announced that the consideration of $17 under the Country Road Bid is its best and final offer and that, if the condition related to the David Jones Scheme is satisfied, it will waive all other conditions of the Country Road Bid other than the condition concerning Foreign Investment Review Board approval.

The application

8    Shortly before the hearing, David Jones provided to the Court the material contained in Exhibit 6 (which was the proposed supplementary disclosure), an affidavit of Mr Cameron Hanson affirmed on 2 July 2014 and the material in Exhibit CDH-1. David Jones relied on these materials and did not provide written submissions. Mr Jackman SC appeared for David Jones with Mr Thomas at the hearing.

9    Exhibit 6 comprises a document headed “David Jones Limited: Scheme Booklet - Supplementary Disclosure” (Supplementary Disclosure). The Supplementary Disclosure includes as Annexure B a letter from Grant Samuel to the directors of David Jones (Supplementary Grant Samuel Letter) following a request from the directors for Grant Samuel to review the opinion contained in the Independent Expert’s Report set out in Annexure B to the Scheme Booklet in light of matters which have arisen since the Scheme Booklet was despatched to shareholders on 23 May 2014.

10    Exhibit CDH-1 includes copies of the 2013 financial statements for Country Road, the announcements by WHL referred to above on 24 and 30 June 2014, and letters dated 17 June, 1 July and 2 July 2014 from the Australian Securities & Investments Commission (ASIC) addressed to Herbert Smith Freehills (solicitors to David Jones) in relation to the Supplementary Disclosure.

11    Tab 10 of Exhibit CDH-1 is a letter dated 2 July 2014 to the directors of David Jones from Grant Samuel (Grant Samuel 2 July Letter) which addresses the information within the control of Country Road to which Grant Samuel would need access to provide a valuation of shares in Country Road and some other issues. Grant Samuel was aware that this letter would be provided to the Court in connection with the Court’s consideration of the Scheme; the letter does not form part of the proposed supplementary disclosure.

12    Mr Halley SC sought leave for ASIC to appear amicus curiae, and leave was granted. Mr Halley tendered ASIC’s written submissions and made submissions at the hearing.

13    Mr Foreman appeared for WHL at the hearing.

Supplementary Disclosure

14    The Supplementary Disclosure is principally directed at explaining Mr Lew’s interest in the Country Road Bid. After addressing the background at [4]-[7] above, it discloses (among other things) that :

If Mr Lew chooses to accept the WHL Country Road bid, once that bid becomes unconditional, interests associated with Mr Lew will receive approximately A$209.2 million in consideration for his Country Road shares. Some media commentary has suggested that A$17.00 is a generous bid price for Country Road. David Jones is unable to make an assessment on that matter, but draws the following matters to the attention of David Jones Shareholders:

●    David Jones has been informed by WHL that, before companies associated with Mr Lew acquired a stake in David Jones, WHL has had an ongoing desire to acquire all of the shares in Country Road which it did not already own. WHL indicated that the acquisition by Mr Lew of shares in David Jones prompted them to launch a takeover bid now rather than at some other time. Further, because WHL sees synergy benefits in owning both David Jones and Country Road (a retail company) and would like to resolve the stalemate with Mr Lew which has existed for 17 years with respect to Country Road, WHL was comfortable that to make the takeover bid for Country Road at this time was in the best interests of WHL’s shareholders and delivered the greatest chance of transaction certainty for the Scheme.

●    The closing price of Country Road on 23 June 2014, the day before WHL’s takeover bid was announced was A$14.00.

●    The highest price at which Country Road shares traded in the 3 months up to and including 23 June 2014 was A$15.40 and the lowest price was A$9.80.

●    The highest price at which Country Road shares have traded in the past year up to and including 23 June 2014 was A$15.40 and the lowest price was A$3.33.

●    Due to the very limited free float of shares in Country Road, Country Road shares are extremely thinly traded and therefore may experience greater price volatility than other shares. Because of that thin trading, share prices may not be a reliable guide to the fair value of Country Road shares, and therefore David Jones Shareholders may wish to consider what weight to attribute to the Country Road share price in assessing the opportunity available to Mr Lew under the Country Road takeover bid, should you consider this relevant.

David Jones directors consider that this is a unique set of circumstances, where David Jones’ Scheme risks being adversely affected by a long-running stalemate between Mr Lew and WHL in which David Jones has no involvement and which has nothing to do with David Jones. The David Jones’ Board does not consider that, if the takeover bid for Country Road had not been made, any of the cash or value offered under the Country Road takeover bid would instead have been offered to David Jones Shareholders. David Jones considers the fact that the takeover bid has been made for Country Road is positive for David Jones Shareholders in that, consistent with views expressed publicly by several large David Jones Shareholders, they hope the fact that a takeover bid has been made for Country Road might lessen the risk to the David Jones Scheme.

As noted in section 1.5 below, the Independent Expert has considered these facts and confirmed that it remains of the view that the Scheme is fair and reasonable and, therefore, in the best interests of David Jones Shareholders, in the absence of a superior proposal.

Further, the David Jones Board continues to unanimously recommend that, in the absence of a Superior Proposal, David Jones Shareholders vote in favour of the Scheme.

ASIC has queried with David Jones and WHL whether the WHL Country Road bid is a benefit that is intended or likely to induce Mr Lew to vote in favour of the Scheme or to dispose of his David Jones Shares, in circumstances where that benefit is not offered to all David Jones Shareholders.

David Jones considered it appropriate to bring these matters to your attention for your consideration, notwithstanding that the David Jones Board continues to unanimously recommend that in the absence of a Superior Proposal, David Jones Shareholders vote in favour of the Scheme.

Despite the David Jones Board’s recommendation and Independent Expert’s conclusion, you might consider it unfair that Mr Lew, as a Country Road shareholder, has an offer under the takeover bid for his Country Road shares which very substantially exceeds some recent trading prices of Country Road shares and might exceed the fair value of those shares, the timing of which appears to have been affected by his acquisition of a stake in David Jones, and you may consider this a reason to vote against the Scheme.

If, on the other hand, you are concerned at the risk that Mr Lew will vote against the Scheme, you may consider this a reason to vote in favour of the Scheme, to seek to maximise the chance of the Scheme vote being passed if Mr Lew votes against it. In relation to Mr Lew’s voting intentions, David Jones has requested Mr Lew not to vote the shares noted above in the David Jones Scheme, but to-date Mr Lew has not provided any indication of his voting intentions in relation to the David Jones Scheme.

15    ASIC raised a number of concerns relating to the adequacy of the Supplementary Disclosure.

ASIC’s primary Concerns

Possible collateral benefit

16    ASIC said its primary concern is whether the consideration offered under the Country Road Bid offends the equal opportunity principle in s 602(c) of the Corporations Act in relation to the David Jones Scheme. This is because ASIC suspects that the price of $17 per share offered under the Country Road Bid is in substance the offer of a benefit to Mr Lew during the period leading up to the Scheme Meeting for the purpose of inducing Mr Lew to vote in favour of the Scheme or to remove himself from the David Jones register. It is not a benefit available to other David Jones shareholders.

17    ASIC pointed out that the Country Road Bid enables Mr Lew to dispose of his otherwise highly illiquid holding in Country Road to the only likely buyer in circumstances dependent on the outcome of the Scheme. Despite having 17 years to do so, WHL did not decide to make a takeover offer for the outstanding Country Road shares until Mr Lew acquired a material stake in David Jones. ASIC says the fact that the offer is made as part of a regulated takeover bid does not detract from its intent to influence the actions of Mr Lew.

18    The offering of a collateral benefit designed to induce a shareholder to accept a takeover bid conducted under Chapter 6 of the Corporations Act or to dispose of shares in the same class as those the subject of a bid would be prohibited under s 623(1). In its consideration of whether unacceptable circumstances may exist, the Takeovers Panel looks at whether a bidder provides a security holder something of value which it does not offer to other security holders: see Takeovers Panel Guidance Note 21: Collateral Benefits at [5].

19    Although there is no equivalent provision to s 623 relating to schemes of arrangement effected under s 411 of the Corporations Act, it is ASIC’s policy to have regard to these principles in relation to a scheme effecting a change of control: see ASIC Regulatory Guide 60 Schemes of Arrangement (RG 60) at [RG 60.18]. ASIC says to do otherwise has the potential to undermine the integrity of the scheme procedure as a method of effecting a control transaction.

20    Mr Jackman submitted that the question of whether the Country Road Bid constitutes a collateral benefit and (if so) the consequences in the context of a scheme (rather than a Chapter 6 takeover to which s 623 applies) is a matter for argument at the second court hearing at which the Court will decide whether to approve the Scheme. He argued that in a scheme context, differential treatment of shareholders is a matter which may give rise to an issue of class definition, although in the context of the David Jones Scheme there is no tenable argument that Mr Lew’s interests fall into a different class. If David Jones is wrong about that it is prepared to run the risk that, at the second court hearing, the Court will take a different view but the appropriate time to develop all of the arguments, in light of all factual material, is at the second court hearing.

21    Mr Jackman advised the Court that David Jones will “tag” shares in which Mr Lew has an interest so that the Court will be in a position at the second court hearing to assess whether those votes are determinative of the Scheme being approved by David Jones shareholders.

Expert’s report valuing Country Road shares

22    ASIC accepts that informed consent from shareholders who do not participate in a benefit is a highly relevant factor in the Court’s decision whether ultimately to approve the Scheme. ASIC submitted that, to address this issue, the Supplementary Disclosure should include an independent expert’s report that contains a valuation of the Country Road shares that are to be acquired by WHL under the Country Road Bid. Otherwise, David Jones shareholders may not have adequate information on the basis of which to decide to vote for or against the Scheme.

Practice

23    ASIC submitted that the independent expert’s report should disclose the nature and magnitude of any benefit (which might be characterised as any excess over the fair value of Country Road shares) which Mr Lew would receive and which is not available to other David Jones shareholders. ASIC says that such a report is an appropriate and desirable means to determine the value of any benefit and this was recognised by the Court in Re iSOFT Group Limited [2011] FCA 680 (iSOFT) at [9], Re Texon Petroleum Limited [2013] FCA 29 (Texon) at [27] and Re Aston Resources Limited [2012] FCA 229 (Aston) at [23]: see also RG 60 at [60.23]. On the basis of these cases, Mr Halley suggested that it has become the practice of the Court that such valuations be conducted for the purpose of assisting shareholders in voting on whether or not to approve a Scheme where a collateral benefit is involved.

24    Mr Jackman submitted that the cases cited by ASIC are not authority for the proposition that it is a practice of the Court to require an independent expert’s report where there is a benefit provided otherwise than under the Scheme. He says that in those cases the reports were proffered by the proponent of the Scheme and points out that in Aston Jacobson J at [24] found that there was no collateral benefit.

Limitations on David Jones access to material necessary for a valuation of Country Road shares

25    David Jones relied on the Grant Samuel 2 July Letter. In it, Grant Samuel states that there is no settled basis for assessing a collateral benefit, but it would not be in a position to assess the fair value of Country Road shares to the standard required in accordance with ASIC’s regulatory guidance for the preparation of independent expert’s reports without access to non-public information. Grant Samuel says that to perform the task it would need:

    access to details of Country Road’s financial performance for the year ended 28 June 2014; its budget for the year ended 27 June 2015; any other medium-term projections for its business; its strategic plans; and its financial position at 28 June 2014;

    to hold in-depth discussions with Country Road’s management about its business and the business’ prospects;

    to obtain Country Road management’s estimates of the impact on revenues, costs and capital investment having regard to WHL’s plan to increase the amount of Country Road (as well as Witchery and Mimco) products sold through David Jones, assuming WHL acquires 100% of David Jones. This is on the basis that Country Road minority shareholders could reasonably expect any mop up price to take prospective profit uplift into account;

    to undertake analysis of the valuation metrics applying to other listed branded apparel retailers and acquisitions of comparable apparel retailers; this is different from the analysis undertaken for the David Jones independent expert’s report which focused on department store retailers; and

    Three to six weeks to complete the report, assuming timely production of required information and reasonable access to Country Road management.

26    ASIC submitted that if David Jones does not have access to all information necessary for an independent expert to provide an appropriate valuation of Country Road shares, WHL should be in a position to assist. ASIC argued that WHL has sufficient information to include Country Road in its consolidated accounts and the Scheme Implementation Deed to which WHL and David Jones are parties recognises that David Jones and WHL are together responsible for ensuring full and adequate disclosure is provided to David Jones shareholders: see cl 5.2 and the representations and warranties at subcl 11.1(g) to (i). In any event, it will be necessary for the board of Country Road to provide a report in connection with the Country Road Bid to accompany its target statement.

27    ASIC suggested that the Court should be wary of arguments presented by David Jones about any timing, access or structural difficulties that might be said to prevent full and meaningful disclosure in the form of an independent valuation. ASIC said it is incumbent on the acquirer and proponent of a scheme to agree an overall proposal that addresses the relevant disclosure requirements and policy concerns resulting directly from their own choices and actions during the course of a control transaction.

28    Mr Foreman addressed only the issues raised by ASIC in relation to WHL’s capacity to assist David Jones in the provision of an independent expert’s report and the timing of the provision of an expert’s report by Country Road as part of its disclosure obligations under Chapter 6 in response to the Country Road Bid. He advised the Court that Country Road hopes to circulate its target statement by Monday 14 July 2014 but this is aggressive timing; its advisors hope that an expert’s report will be available by 10 or 11 July 2014. As WHL is the bidder, that is not a matter within its control.

29    While Mr Jackman accepted that WHL may have some of the information which Grant Samuel indicated an expert would require to prepare a valuation of Country Road shares, he submitted that:

    WHL was not in a position to provide all of it, and there is no basis to think that a report could properly be prepared on the basis of some but not all of the information;

    Although WHL holds almost 90% of the shares in Country Road, it is not in a position to provide access to Country Road management, nor would it be appropriate for the necessary commercially sensitive information to be provided to David Jones, a competitor and customer of Country Road;

    Even if those issues could be overcome, based on Grant Samuel’s advice, it would take an expert three to six weeks to prepare the report (all things going well). However, David Jones’ financial year end is 26 July which would necessitate updating the financial information in the Scheme Booklet. There is prejudice to David Jones shareholders in a protracted scheme procedure (which includes delay in receiving the Scheme Consideration, assuming the Scheme is approved) which the marginal benefit of an independent expert’s report would not outweigh;

    David Jones bears the risk that at the second court hearing the Court will not be satisfied that the David Jones shareholders have been adequately informed.

Consideration of ASIC’s Primary Concerns

30    ASIC’s primary concerns are substantial matters. Where an issue emerges of whether a shareholder in a scheme company may receive some benefit different from other shareholders if the scheme is approved, the best information for shareholders or the Court in considering whether to approve the scheme is an appropriately qualified independent expert’s report which identifies the nature and extent of the benefit.

31    It is for this reason that it has become usual for proponents of a scheme which may benefit a shareholder, director or other related party differently from other scheme participants to provide an expert’s report concerning the nature and extent of the likely benefit at the first court hearing to assist the Court in making orders convening a scheme meeting under s 411(1). iSOFT, Texon and Aston are all cases of this kind. The Court did not require the provision of the report in those cases, it was proffered. It is undoubtedly logistically easiest to arrange for an expert’s report at the time of the first court hearing and it is appropriate that it occur then (where it is possible) so that shareholders have time to consider any issues before they vote. However, while provision of an expert’s report may be the best way to satisfy the Court on this issue, it does not mean that it is the only way.

32    The question of whether Mr Lew might receive a benefit of any kind did not arise at the first court hearing for the Scheme: Mr Lew lodged a notice advising that he had acquired a substantial holding in David Jones almost a month after the despatch of the Scheme Booklets and WHL’s intention to make the Country Road Bid was announced a week after Mr Lew’s notification of substantial holding.

33    While I accept ASIC’s submission that the connection between the Scheme and the Country Road Bid is clear, it is a matter for the second court hearing whether the Country Road Bid amounts to the offer of a collateral benefit to Mr Lew and (if so) its relevance to the exercise of the Court’s discretion to approve the Scheme under s 411(4)(b) having regard to voting at the Scheme Meeting and whether the Court is satisfied that David Jones shareholders had adequate information on the basis of which to make an informed vote. David Jones will need to satisfy the Court on those issues, and Mr Jackman acknowledged that David Jones carries the risk that it might not be able to do so. ASIC, through Mr Halley, has reserved its right to make submissions on those matters should it see the need to do so. It is also possible that one or more shareholders may wish to oppose the Court making orders because of issues related to Mr Lew or on some other basis.

34    I am satisfied that there are practical difficulties in the way of David Jones or WHL commissioning an expert’s opinion about the fair value of Country Road shares at this time. David Jones is a competitor and customer of Country Road. Even though David Jones may become part of the WHL group if the Scheme is successful, it is not today. I accept that WHL may not factually be able to provide all of the information suggested by Grant Samuel, and even if it could, it may be that Country Road has valid claims as to its confidentiality. It may also be difficult for directors of Country Road to form the view that it is in the best interests of the Country Road shareholders as a whole for Country Road to provide information of a kind which Grant Samuel has suggested would be necessary, although the commercial advantage to Country Road of synergies available from the successful completion of the David Jones Scheme could possibly justify it. I note that ASIC did not suggest that Grant Samuel was wrong in the nature of the information it identified as being necessary to prepare an expert valuation of Country Road shares.

35    Further, Country Road must respond to WHL’s takeover offer and to do that it must commission an expert’s report under s 640 as to whether the offers under the Country Road Bid are “fair and reasonable”. To form that opinion, the expert will usually provide a value range for Country Road shares against which to assess the offers. While Mr Foreman mentioned that it would be an “aggressive” timetable for Country Road to be able to put out a target statement by 14 July 2014, the availability of the expert’s report and the capacity of David Jones shareholders to access that report may be a relevant matter at the second court hearing, depending upon its contents.

36    In any event, the application made by David Jones is for directions under s 1319 in relation to the despatch of the Supplementary Disclosure. The main consideration is whether the information is misleading in any way.

37    For the reasons set out below under the headings “Relevance of Country Road share price”, “Synergies” and “Supplementary Grant Samuel Letter”, I am not persuaded by ASIC’s arguments on those matters.

38    On a fair reading of the Supplementary Disclosure, David Jones puts its shareholders on notice that Mr Lew may be receiving consideration for Country Road shares which is greater than their fair value although David Jones is not in a position to quantify what the fair value of Country Road shares might be. In my view it is clear from the Supplementary Disclosure that the price at which Country Road shares traded on the ASX in the past 12 months is an unreliable guide having regard to the extremely thin trading of the shares on the ASX and the volatility of the price at which they traded. Whether that information is adequate in light of events which may occur will be a matter to be determined at the second court hearing. It is appropriate at this stage for David Jones to provide its shareholders with a summary of the events which have occurred since the Scheme Booklet was despatched and to put them on notice of Mr Lew’s financial interest in the outcome of the Scheme over and above his right to receive Scheme Consideration if the Scheme is approved by shareholders and the Court, even if it is not currently possible to quantify the extent to which $17 exceeds the fair value of a Country Road share.

39    I note Mr Jackman’s advice that Mr Lew’s shares will be “tagged” so that the impact of any votes cast by Mr Lew at the Scheme Meeting may be assessed. There is no proposal to “tag” other shareholders of Country Road who are also David Jones shareholders, even though they would be receiving proportionately the same benefit (if any) as Mr Lew. Given the disparity in Mr Lew’s interest in Country Road compared to shareholders other than WHL’s subsidiary, that is unlikely to be an issue.

Other issues raised by ASIC

Relevance of Country Road share price

40    ASIC submitted that the disclosure about Country Road share prices in the Supplementary Disclosure does not sufficiently identify the reasons why those prices are an unreliable guide to the value of Country Road shares in assessing benefits which Mr Lew may receive under the Country Road Bid. For ease of reference, the relevant part of the Supplementary Disclosure is:

●    The closing price of Country Road on 23 June 2014, the day before WHL’s takeover bid was announced was A$14.00.

●    The highest price at which Country Road shares traded in the 3 months up to and including 23 June 2014 was A$15.40 and the lowest price was A$9.80.

●    The highest price at which Country Road shares have traded in the past year up to and including 23 June 2014 was A$15.40 and the lowest price was A$3.33.

●    Due to the very limited free float of shares in Country Road, Country Road shares are extremely thinly traded and therefore may experience greater price volatility than other shares. Because of that thin trading, share prices may not be a reliable guide to the fair value of Country Road shares, and therefore David Jones Shareholders may wish to consider what weight to attribute to the Country Road share price in assessing the opportunity available to Mr Lew under the Country Road takeover bid, should you consider this relevant.

41    ASIC submitted that the disclosure may mislead a shareholder unaccustomed to the terminology used to think that the prices have some relevance. ASIC pointed to the use of language such as “may” instead of “would” in relation to price volatility and the reliability of share price as a guide to fair value in the fourth dot point. ASIC says that this contrasts with the clear statement in the Grant Samuel 2 July Letter to the David Jones board, which will not be circulated to shareholders. In the Grant Samuel 2 July Letter, after considering the significant premiums which the $17 price represents over prices on 31 January, 8 April and 23 June 2014, Grant Samuel says:

In any event, in Grant Samuel’s opinion, none of this evidence is meaningful because of the extreme illiquidity of Country Road shares. To the extent analysis of premiums is useful, it is only where the pre bid market is liquid and well informed that the share price is likely to reflect “fair value” of a minority parcel of shares. In the case of Country Road:

●    there are only around 180 shareholders;

●    the free float is 0.24% of issued share capital or 244,202 shares;

●    shares only trade irregularly and recently less than 20 times a year (8 times during 2013); and

●    although the number of trades increased following release of Country Road’s half year results, the market for Country Road shares remains illiquid.

As a result, Grant Samuel does not believe that the share prices represent “fair value” of a portfolio interest in Country Road.

42    Mr Jackman submitted that although David Jones’ wording is less strongly expressed than Grant Samuel’s, it is not contradictory.

43    I am not persuaded by ASIC’s argument. The views expressed in the Grant Samuel 2 July Letter need to be understood in the context of the document as a whole: consideration by a professional valuer of methodologies for valuing Country Road shares. Albeit that there is more information in the Grant Samuel 2 July Letter, the first three dot points in the extract at [40] graphically demonstrate the volatility in share prices (varying between a low of $3.33 and a high of $15.40 during a 12 month period). A fair reading of the fourth dot point in the extract is that the prices at which Country Road shares traded in the 12 month period do not provide a reliable guide to their value; it is not necessary to be a financially sophisticated reader to glean that information.

44    The information in the extract does not purport to be a valuation. It does disclose that the $17 offer price is higher than any price at which Country Road shares have traded in a three month and 12 month timeframe by giving the highest and lowest prices at which trades occurred in those periods. It also gives the last price before the announcement. This information occurs in the context that David Jones is advising its shareholders that some reports have described the price which Mr Lew will receive for his holding of Country Road shares as “generous” and the potential benefit to him is something that they may want to take into account when voting on the Scheme.

Synergies

45    ASIC submitted that it understands that the $17 offer price under the Country Road Bid reflects synergies that will be derived by WHL from holding 100% of both Country Road and David Jones. However, the offer price of $4 for David Jones shares under the Scheme has not been increased to reflect that synergy. ASIC referred to a comment in the Grant Samuel 2 July Letter:

It should also be noted that some of the synergies anticipated by Woolworths in acquiring David Jones relate to increasing sales in David Jones stores of its existing Australian brands (Country Road, Mimco and Witchery).

46    I do not accept this argument. In my view, this reference, and the reference in the first dot point of the Supplementary Disclosure at [14] above are to synergies which WHL would derive from obtaining control of David Jones under the Scheme so that it has control of the amount of product produced by Country Road which is sold through David Jones. From this viewpoint, there can be no greater synergy which might be achieved by WHL in obtaining 100% of Country Road compared with almost 90% of Country Road even if there are administrative synergies for WHL in owning 100% of Country Road and securing its delisting. The consequence is that David Jones shareholders should not properly expect an increase in the Scheme Consideration because of the synergies discussed by Grant Samuel.

Supplementary Grant Samuel Letter

47    ASIC expressed concern that the inclusion of the Supplementary Grant Samuel Letter in the Supplementary Disclosure (referred to in the Supplementary Disclosure as a Supplementary Independent Expert’s Report) does not add useful information in relation to developments associated with the Country Road Bid. Although the Supplementary Grant Samuel Letter confirms Grant Samuel’s findings that the Scheme Consideration is fair and the Scheme remains in the best interests of David Jones shareholders, it does not address the “critical issue” of the benefit which might be given to Mr Lew. ASIC says that issue can only be assessed by valuing the Country Road shares. Further, the reference in the Supplementary Grant Samuel Letter to the material considered by Grant Samuel in preparing the supplementary opinion appears to overstate and potentially misrepresent the scope of the supplementary opinion and mislead shareholders to think that the independent expert endorses the views expressed by David Jones in the Supplementary Disclosure.

48    I do not accept this argument. While the Supplementary Grant Samuel Letter adds little, it confirms that the Country Road Bid has no impact on its view that the Scheme Consideration remains fair and the Scheme is in the best interests of David Jones shareholders. On a fair reading of the Supplementary Disclosure, I do not think that Grant Samuel should be taken to endorse the views expressed in it by David Jones.

Conclusion

49    For these reasons I made the orders sought by David Jones on 2 July 2014.

Associate:

Dated:    9 July 2014