Recent Billabong scheme proves last minute price increases possible in mergers by schemes of arrangement.

Background to Billabong scheme

  • Boardriders and Centerbridge each own just under 20% of Billabong equity and between them are the senior lenders to Billabong of approximately A$224m pursuant to a senior secured term loan.
  • Boardriders proposed a scheme to acquire all of the shares in Billabong that it did not own for $1.00 per share.
  • Following an announcement of the proposed transaction, two institutional shareholders claiming to speak for approximately 15% of the shares eligible to be voted at the scheme meeting publicly indicate they may not support the proposed scheme. Each of them stopped short of making a 'last and final' statement.
  • The proxy deadline for the scheme meeting was 10am (Queensland time) on Monday, 26 March 2018, with the scheme meeting held on 28 March 2018.
  • Based on proxies received by the proxy deadline (78.83% of non-discretionary proxies voted in favour of the scheme resolution), it was possible, but not certain, that the scheme resolution would pass depending on how undirected proxies and votes lodged in person at the scheme meeting were cast.
  • On the date of the scheme meeting, Billabong and Boardriders amended the terms of the scheme implementation deed to increase the scheme consideration from $1.00 to $1.05 cash per share. The scheme meeting was not delayed.
  • The terms of the scheme were not amended at the scheme meeting - i.e. Billabong shareholders voted on the $1.00 proposal. Instead, the chairman of Billabong informed attendees that Boardriders had agreed to increase the consideration. He said that Billabong would seek Court approval at the second court hearing to amend the terms of the Scheme and increase the consideration under section 411(6) of the Corporations Act rather than approaching the Court to amend them prior to the scheme meeting.
  • 95.54% of votes cast on the resolution were in favour of the scheme resolution.
  • MinterEllison was acting for Centerbridge in this matter.

Legal Issues

In the absence of a 'last and final' statement, a bidder can increase their offer. However, this is the first case of its kind where a bidder has agreed to increase its offer immediately before the scheme meeting (without delaying the scheme meeting).

Section 602 of the Corporations Act provides that shareholders should have a reasonable time to consider a proposal under which a person will acquire a substantial interest in a company. In that context, the Australian Securities and Investments Commission (ASIC) Regulatory Guide 60 provides that it is generally appropriate for scheme participants (including those voting by proxy) to be given at least 10 days to consider supplementary documentation distributed before being required to vote on the scheme.

This has been the market practice adopted to date, even in the context of increased offer prices. I.e. the scheme meeting is adjourned/delayed for shareholders to consider the new information and for proxy holders to have the ability to change their proxies if desired.

The price increase was a benefit to all scheme shareholders, regardless of whether they voted in favour, against, or not at all. The key argument was that a shareholder who voted 'yes' for $1.00 per share would not change their vote for an increased $1.05 per share offer price especially in the context where no superior proposals were received to the original offer price of $1.00, Billabong having been in play for several months.

Further, any objecting shareholder could have appeared at the second court hearing to oppose the approval of the scheme. None did.

ASIC's approach

ASIC was satisfied to dispense with the usual 10 day notice requirement in its policy and provided its statement of no objection pursuant to s 411(17)(b) of the Corporations Act. In coming to that conclusion, it cited:

  • the fact the resolution that approved the scheme would have been approved even if the scheme consideration was not increased;
  • the votes cast at the scheme meeting were not determinative of the outcome (i.e. non-discretionary proxies were sufficient to carry the resolution);
  • the scheme resolution had large support (greater than 95%); and
  • the consideration increase was only cash, requiring no additional information to enable value to be determined. This mitigated the need for additional time to consider the proposed amendment.

The Court confirmed, consistent with the recent case of Re Boart Longyear Ltd (No 2) (2017), that is has broad power to amend the terms of a scheme already approved by members in the context where the members are better off.

Implications

This case confirms that given the right facts, there is greater flexibility for scheme proponents to be able to make last-minute price increases to the consideration offered without causing delays to scheme timetables. This is likely to be the case in circumstances where consideration is solely cash (so questions of determining value and disclosure are not in play) and where such amendments are clearly for the benefit of scheme shareholders.