FEDERAL COURT OF AUSTRALIA

Greencross Limited, in the matter of Greencross Limited [2018] FCA 2093

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act), the plaintiff convene a meeting (Scheme Meeting) of its members for the purpose of considering, and if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed between the plaintiff and its members (Share Scheme) being the scheme of arrangement set forth in Annexure A to Appendix C to the explanatory statement in relation to the Share Scheme, which is Exhibit 1 in the proceeding (Scheme Booklet).

2.    Pursuant to s 411(1) of the Act, the Scheme Booklet be approved for distribution to the members of the plaintiff.

3.    The Scheme Booklet to be dispatched to members of the plaintiff be substantially in the form of Exhibit 1 in the proceeding.

4.    The Scheme Meeting be held at 10.00 am (AEDT) on 6 February 2019 at Northside Conference Centre, Corner of Oxley Street and Pole Lane, Crows Nest in the State of New South Wales.

5.    The Chairperson of the Scheme Meeting be Stuart Bruce James and, in his absence, Simon Leonard Hickey.

6.    The Chairperson appointed to the Scheme Meeting have the power to adjourn the Scheme Meeting in his absolute discretion, including to another day.

7.    Except for procedural motions, all voting at the Scheme Meeting be by poll as declared by the Chairperson.

8.    Rule 2.15 of the Federal Court (Corporations) Rules 2000 shall not apply to the Scheme Meeting, except for r 75-15(2) of the Insolvency Practice Rules (Corporations) 2016.

9.    Pursuant to s 1319 of the Act, on or before 21 December 2018, there be dispatched to:

(a)    each member of the plaintiff, who has nominated an electronic address for the purposes of receiving notices of meeting and proxy forms from the plaintiff, at such address, an email which contains links to an electronic copy of the Scheme Booklet, a sample proxy form in respect of the Scheme Meeting substantially in the form of the document at Annexure VJP4 to the affidavit of Vincent James Pollaers sworn on 18 December 2018 (Proxy Form), and a sample election form in respect of the election to choose scheme consideration options by holders of fully paid ordinary shares in the capital of Greencross substantially in the form of the document at Annexure VJP6 to the affidavit of Vincent James Pollaers sworn on 18 December 2018 (Election Form); and

(b)    each other member of the plaintiff, by hand at, or prepaid post or courier to, and in the case of a member whose registered address is outside Australia, by pre-paid airmail post or air courier for overseas pre-paid post to, the address of that member as set out in the register of members of the plaintiff, a copy of the Scheme Booklet, the Proxy Form and the Election Form; and

(c)    if the plaintiff receives notification that the email is unable to be delivered to the nominated electronic address of any member to whom the email was sent in accordance with Order 9(a), the Scheme Booklet, the Proxy Form and the Election Form be dispatched by the plaintiff to that member by the method appropriate to that member referred to in Order 9(b).

10.    Notice of the hearing of an application pursuant to s 411(4)(b) of the Act for orders approving the Share Scheme be published by an advertisement in The Australian newspaper substantially in the form of Annexure "A" to this order, such advertisement to be published on or before 4 February 2019 and the plaintiff be otherwise exempted from compliance with r 3.4 of the Federal Court (Corporations) Rules.

11.    The proceeding be stood over to 10.15 am on 11 February 2019 before Yates J for the hearing of any application to approve the Share Scheme.

12.    Liberty to apply on 2 days' notice.

13.    These orders be entered forthwith.

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

"A"

Greencross Limited

Notice of Hearing to Approve Scheme of Arrangement pursuant to section 411 of the Corporations Act 2001 (Cth)

To all members of Greencross Limited ACN 119 778 862 ("Greencross")

TAKE NOTICE that at 10:15am (AEST) on Monday, 11 February 2019, the Federal Court of Australia at Level 17, Law Courts Building, 184 Phillip Street, Queens Square, SYDNEY, NSW 2000 will hear an application by Greencross seeking the approval of the scheme of arrangement between Greencross and its ordinary shareholders, as proposed by a resolution to be passed by the meeting of ordinary shareholders at the offices of Boardroom Pty Limited at Northside Conference Centre, Corner of Oxley Street and Pole Lane, Crows Nest in the State of New South Wales commencing at 10:00am (AEDT) on 6 February 2018.

If you wish to oppose the approval of the above arrangement, you must file and serve on Greencross a notice of appearance, in the prescribed form, together with any affidavit which you wish to rely on at the hearing. The notice of appearance and affidavit must be served on Greencross at its address for service before 6:00pm (AEDT) on Friday, 8 February 2018.

The address for service of Greencross is c/- Clayton Utz, Level 15, 1 Bligh Street, SYDNEY, NSW 2000 [(Reference: Jonathan Slater) Facsimile: +612 8220 6700 Email: jslater@claytonutz.com].

A copy of the Explanatory Memorandum is available from the ASX's website at www.asx.com.au.

Name of person giving notice or of person’s legal practitioner: Jonathan Slater, Clayton Utz, (02) 9353 4715.

REASONS FOR JUDGMENT

YATES J:

Introduction

1    The plaintiff, Greencross Limited (Greencross) applies for an order pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) that it convene a meeting of its members (Greencross Shareholders) to consider and, if thought fit, agree to (with or without modification) a scheme of arrangement (the scheme) providing for the acquisition by Vermont Aus Pty Ltd (BidCo) of all the shares held by the Greencross Shareholders in Greencross (the Greencross Shares).

2    The plaintiff also seeks an order pursuant to s 411(1) of the Act that the scheme booklet, which will stand as the explanatory statement required under s 412(1)(a) of the Act, be approved.

3    Unless otherwise indicated, the capitalised expressions used in these reasons have the meanings given to them in the glossary in the scheme booklet.

Background

4    Greencross is a public company listed on the Australian Securities Exchange (ASX). It is a retailer of pet food, pet-related products and pet accessories with over 250 retail stores operating in Australia under the trading names Petbarn and City Farmers and, in New Zealand, under the trading name Animates. Greencross also owns and operates the largest network of veterinary practices (clinics and hospitals) in Australasia. As at 18 December 2018, it has 120,463,450 fully-paid ordinary shares on issue.

5    BidCo is a subsidiary of Vermont Aus HoldCo Pty Ld (HoldCo), which is ultimately owned by funds managed by TPG Asia VII SF Pte Ltd and TPG Growth IV SF Pte Ltd (together, TPG). HoldCo is an unlisted, proprietary company.

6    On 5 November 2018, Greencross entered into a Scheme Implementation Agreement with BidCo to acquire 100% of the Greencross Shares, subject to the satisfaction or waiver of a number of Conditions Precedent. This was announced to the ASX on the same day. The Scheme Implementation Agreement sets out the terms and conditions on which BidCo will acquire all the Greencross Shares and the framework for the proposal of the scheme.

The scheme

7    Under the scheme, the Greencross Shareholders will transfer their Greencross Shares to BidCo. Thereupon, Greencross will become a wholly-owned subsidiary of HoldCo and will de-list from the ASX.

8    The consideration for the shares (the scheme consideration) will be either (at the election of each Greencross Shareholder):

(a)    cash equal to $5.55 per Greencross Share, made up of a fully-franked dividend of up to $0.21 per Greencross Share held at the Special Dividend Record Date that may be declared and paid before the scheme is implemented (the Special Dividend) plus $5.55 per Greencross Share held at the Scheme Record Date less the amount of the Special Dividend (the Cash Consideration); or

(b)    mixed consideration.

9    The mixed consideration is of two types, once again involving an election on the part of the Greencross Shareholders:

(a)    the Cash Consideration in respect of 50% of the Greencross Shares held on the Scheme Record Date plus Scrip Consideration in respect of the remaining 50% of the Greencross Shares held on the Scheme Record Date (Mixed Consideration Option 1); or

(b)    the Cash Consideration in respect of 25% of the Greencross Shares held on the Scheme Record Date plus Scrip Consideration in respect of the remaining 75% of the Greencross Shares held on the Scheme Record Date (Mixed Consideration Option 2).

10    The Scrip Consideration comprises B Class shares issued by HoldCo at a notional price of $1.00 per share.

11    The election for either Mixed Consideration Option 1 or Mixed Consideration Option 2 is subject to a Minimum Scrip Threshold and a Maximum Scrip Threshold. If the Minimum Scrip Threshold is not satisfied, all Greencross Shareholders will receive the Cash Consideration. If the Maximum Scrip Threshold is exceeded, a scale-back mechanism will be applied so that the total number of B Class shares to be issued does not exceed 15% of the total shares on issue in HoldCo. A Greencross Shareholder who does not make a valid election in respect of the scheme consideration by the Election Date (7.00 pm on 25 January 2019) will receive the Cash Consideration.

12    Greencross’ directors make no recommendation in relation to the mixed consideration options (as to which see below at [21]), in respect of which there are certain risks. The mixed consideration alternatives formed part of BidCo’s initial proposal to the Greencross Board. It has been included as a feature of the scheme to give Greencross Shareholders with a registered address in Australia an opportunity to retain an ongoing investment in the Greencross business, if they wish. The notional value of the Scrip Consideration issued under these options will be equal to the value of the Cash Consideration. If Greencross does not declare a Special Dividend, or declares a Special Dividend of less than $0.21 per Greencross Share, the notional value of the Scrip Consideration will be increased by the corresponding amount, so that the total notional value received by Greencross Shareholders who elect to receive the mixed consideration and participate in both the Special Dividend and the scheme will be $5.55 per Greencross Share.

13    The scheme transaction will be implemented in the following manner. Greencross Shareholders will be entitled to make an election with respect to the scheme consideration prior to the Election Date. The results of the election process will be announced on 29 January 2019. Greencross Shareholders can change their election at any time up to the Election Date. The last date for lodgement of proxies will be 10.00 am on 4 February 2019, allowing for a change of proxy to be made after the election results are announced. The scheme meeting will be held at 10.00 am on 6 February 2019.

14    Assuming the scheme to be agreed to by the Greencross Shareholders, and approved by the Court, BidCo will pay to, or procure the payment to, a trust account operated by or on behalf of Greencross, an amount in cleared funds equal to the Aggregate Cash Consideration to be held on trust for the Scheme Shareholders. BidCo will also procure the allotment of the Aggregate Scrip Consideration to applicable Scheme Shareholders, subject to any applicable scale back in accordance with the Scaleback Mechanism. Following written confirmation that the scheme consideration has been provided, the Scheme Shares will be transferred to BidCo. Within five business days of the Implementation Date, Greencross must pay each Scheme Shareholder the amount of cash that is due to that shareholder as Cash Consideration.

15    Those who elect to receive the mixed consideration will be required to provide, on their election form, their authorisation to be registered as the holder of the HoldCo shares and agree to be bound by HoldCo’s Constitution and the HoldCo Shareholders’ Deed which has been included as Appendix D to the scheme booklet.

16    Scrip Consideration cannot be provided to Ineligible Foreign Shareholders (who instead will receive the Cash Consideration) regardless of the election made by those persons, unless BidCo determines that it is lawful and not unduly onerous or impracticable to provide the shareholder in question with the shares when the scheme becomes effective. Ineligible Foreign Shareholders are those Greencross Shareholders whose addresses, as recorded in Greencross’ share register, are located outside Australia and its external territories.

17    HoldCo can elect that the Scrip Consideration be registered in the name of a custodian nominated by it where the allotment of the Aggregate Scrip Consideration would result in there being more than 50 registered shareholders in HoldCo or, otherwise, with Greencross’ consent.

18    The scheme includes certain deemed warranties by the Scheme Shareholders, essentially that their Scheme Shares will be fully paid and transferred free from encumbrances and third party interests. There is nothing unusual in the form of the warranties required.

19    The scheme is not subject to financing conditions precedent, although it is subject to other conditions precedent. If not satisfied, these conditions precedent can be waived.

Miscellaneous matters

Recommendation of the directors

20    Greencross’ directors have recommended unanimously that Greencross Shareholders vote in favour of the scheme in the absence of a Superior Proposal and subject to the independent expert (see below) continuing to conclude that the scheme is in the best interests of the shareholders. This recommendation is based on the quantum of the Cash Consideration. Each director intends to vote his or her shares (collectively, 6.8% of the shares currently on issue) in favour of the scheme.

21    The directors make no recommendation in relation to the mixed consideration options due to the speculative nature of the Class B shares in HoldCo and the fact that the appropriateness of these options will depend significantly on the characteristics and risk profile of individual shareholders.

The independent expert

22    Grant Thornton Corporate Finance Pty Limited (Grant Thornton) has provided an independent expert’s report on whether the scheme is fair and reasonable and in the best interests of the Greencross Shareholders. The report, which is included as Appendix B to the scheme booklet, was prepared under the supervision of Andrea de Cian and Jannaya James, who are Directors of Grant Thornton and Partners of Grant Thornton Australia. Mr de Cian and Ms James have verified the opinions expressed in the report.

23    The report expresses the opinion that the scheme is fair to Greencross Shareholders because the Cash Consideration is within Grant Thornton’s assessed valuation range of a Greencross Share on a 100% control basis. In considering the reasonableness of the scheme, Grant Thornton took into account a range of qualitative factors, including advantages and disadvantages of the scheme, and came to the conclusion that the scheme is reasonable. Based on its findings of fairness and reasonableness, Grant Thornton came to the overall conclusion that the scheme is in the best interests of Greencross Shareholders in the absence of a superior alternative proposal emerging.

24    It is important to note that this opinion was based on an assessment of the Cash Consideration alone. Whilst Grant Thornton reached no overall conclusion in relation to each mixed consideration option, the report expresses the view that, had Grant Thornton assessed the fairness of the scheme based solely on the mixed consideration options, the conclusion would have been that the scheme is not fair to Greencross Shareholders. This is because the value of the scheme consideration, assessed on this basis, is outside the range of values assessed for a Greencross Share.

The scheme meeting

25    As I have noted, the scheme meeting will be held at 10.00 am on 6 February 2019. Stuart James, who is the Chairman of Greencross and one of its non-executive directors, has consented to act as chairperson of the meeting. Simon Hickey, who is the Managing Director and Chief Executive Officer of Greencross, has consented to act as chairperson if Mr James is unable to act. Mr James and Mr Hickey have made affidavits that comply with r 3.2 of the Federal Court (Corporations) Rules 2000.

Exclusivity arrangements

26    The Scheme Implementation Agreement provides for certain exclusivity arrangements, including “no shop”, “no talk” and “no due diligence” restrictions, and “notification” and “matching right” obligations. The restrictions and obligations are imposed for the Exclusivity Period which, in effect, is a period of six months from the date of the Scheme Implementation Agreement, unless the agreement is terminated earlier or the End Date is varied by the parties. The Exclusivity Period is capable of precise ascertainment. The period of six months is within a range that is usually considered to be reasonable.

27    The “no talk” and “no due diligence” restrictions, and the “notification” obligation (in respect of the identity of the third party making an unsolicited approach), are subject to a carve-out: Greencross can undertake an otherwise prohibited action in relation to an actual, potential or proposed bona fide proposal that is, in substance, an unsolicited, superior and competing proposal, in circumstances where a failure to act would likely involve the Greencross directors in a breach of their fiduciary or statutory duties to the company.

Break fee

28    The Scheme Implementation Agreement provides for the payment by Greencross of a break fee of $6.75 million in certain circumstances. This sum represents approximately 1% of the total equity value of Greencross having regard to the value of the Cash Consideration ($5.55 per Greencross Share). There is evidence before me that the break fee was agreed in arm’s-length commercial negotiations, with regard being had to the Takeover Panel’s Guidance Note 7: Lock-Up Devices. It represents, in the parties’ view, a genuine and reasonable pre-estimate of BidCo’s sunk costs in planning and implementing the scheme proposal. Payment of the break fee is not triggered by the Greencross Shareholders failing to agree to the scheme.

Performance risk

29    Performance risk is managed by the order in which the scheme consideration is to be provided and the Scheme Shares are to be transferred: see [14] above. BidCo and HoldCo have also executed a Deed Poll in favour of Scheme Shareholders in which each company agrees to provide or procure the provision of the scheme consideration in accordance with the scheme and undertakes that the Scrip Consideration will be duly issued free from encumbrances and fully paid.

Interests in Greencross Shares

30    Jeffrey David is an employee of a company in which an associate of BidCo holds a majority interest. Entities controlled by Mr David have an interest in Greencross Shares, representing 3.3% of the shares currently on issue. Greencross will tag the voting of these shares for the purpose of reporting, at the proposed second court hearing, on the outcome of the voting at the scheme meeting.

Performance rights

31    Greencross operates employee incentive plans involving the issue of Greencross Performance Rights. There are 1,166,680 such rights on issue which have not vested or lapsed. If Greencross’ Board determines to vest these rights prior to the Scheme Record Date, those rights will vest and Greencross Shares will be issued to the holders of the rights, who will receive the scheme consideration in respect of their Greencross Shares held at the Scheme Record Date. By the proposed second court hearing, Greencross is required under the Scheme Implementation Agreement to put in place arrangements that will ensure that the Greencross Performance Rights will either vest or lapse before the Scheme Record Date and that no more than 1,666,680 Greencross Performance Rights will vest.

Verification of scheme booklet

32    Evidence has been provided of the procedures that have been taken to verify the accuracy of the information provided in the scheme booklet.

33    Vincent Pollaers, who is the General Counsel and Company Secretary of Greencross, has had responsibility for coordinating the verification of statements made in the scheme booklet with respect to Greencross. Mr Pollaers has deposed that the scheme booklet does not omit any relevant information about Greencross that is necessary to be disclosed to Greencross Shareholders in connection with the scheme. He has also deposed to his belief that statements of fact in the scheme booklet in respect of Greencross are true, that statements of opinion and forward-looking statements in respect of Greencross are based on reasonable grounds, and that the information given with respect to Greencross is not misleading or deceptive.

34    On 17 December 2018, the directors of Greencross resolved that the scheme booklet be approved for “lodgement” with the Court, registration with ASIC and dispatch to the Greencross Shareholders.

35    Vincent Wong is the Company Secretary of BidCo. Mr Wong has given evidence of the verification procedures undertaken by BidCo in relation to information in the scheme booklet pertaining to BidCo. Mr Wong has deposed that, on the basis of the verification process he described, he is satisfied that the information in the scheme booklet relating to BidCo has been verified, is not misleading or deceptive, and does not omit information that is material.

ASIC

36    The Australian Securities and Investments Commission (ASIC) did not appear at the hearing of the present application. This is not unusual. In the normal course, ASIC would provide a letter expressing its satisfaction that the requirements of s 411(2) of the Act have been met (if that be the case). ASIC accepts that these requirements have been met in the present case. It has, however, raised certain aspects of the scheme which give it concern on public policy grounds. These matters have been brought to my attention. In ASIC’s view, offering scrip in proprietary companies under schemes of arrangement to more than 50 target shareholders, including through the actual or contemplated use of custodian or nominee arrangements, is contrary to public policy and the specific prohibitions and legislative intent of s 113 of the Act and the limitations placed on proprietary companies. Greencross and BidCo disagree with that view.

37    Given its concerns, ASIC has indicated that its current intention in relation to the proposed scheme is not to provide a “no objection” statement under s 411(17)(b) of the Act. This will mean that, at a second court hearing, Greencross will need to establish to the Court’s satisfaction that the scheme has not been proposed for the purpose of avoiding the operation of any of the provisions of Ch 6 of the Act: see s 411(17)(a). A similar question arose recently in Capilano Honey Limited, in the matter of Capilano Honey Limited (No 2) [2018] FCA 1925 where ASIC refused to provide a “no objection” letter on substantially the same grounds.

Conclusion and disposition

38    I am satisfied that Greencross is a Pt 5.1 body and that the scheme is an “arrangement” for the purposes of s 411(1) of the Act. I am satisfied that the formal requirements that are preliminary to the Court convening a meeting under s 411(1) of the Act have been satisfied. The concerns raised by ASIC (see [36] to [37] above) do not stand as a reason why a meeting under that provision should not be convened. Further, I am satisfied that the proposed scheme is of such a nature and is cast in such terms that, if it receives the requisite statutory majorities, the Court would be likely to approve it on an unopposed application. However, as I have noted, the Court would need to be satisfied in terms of s 411(17)(a) of the Act before granting such approval.

39    For these reasons, the orders that are presently sought should be made.

Associate:

Dated:    21 December 2018