- Court considers role of media coverage in approving Seven Network merger
- Media coverage was relevant to not requiring dispatch of updating material for a late arising development
- ASIC played a key role in the Seven Network schemes
The Federal Court of Australia recently approved the schemes of arrangement between Seven Network Limited (Seven Network) and holders of its ordinary and preference shares. These schemes will effect a merger of Seven Network and the WesTrac equipment business under a new listed company, Seven Group Holdings Limited (Seven Group). The merger was announced on 22 February 2010. The court hearing to approve the schemes was held on 23 April 2010, with court orders and judgment delivered on 27 April 2010.
What role did media coverage play?
During the two months and one day from announcement to the court hearing to approve the schemes, the merger was extensively covered in print and online media—not all of it positive!
Perhaps ironically, this media coverage assisted the court and the transaction on two fronts:
- The late breaking ACE deed poll: The extensive media coverage of a late breaking development—albeit beneficial to shareholders—eight days before the shareholder meetings assisted the court to determine that it would not intervene to require updating documentation to be dispatched to shareholders. Seven Network could adopt its preferred course of not issuing updating documentation. Again in light of the media coverage, Seven Network willingly undertook the risk of a challenge to this course at the impending court hearing to approve the schemes in exchange for maintaining its existing timetable.
- The court considering disclosure compliance: At the court hearing to approve the schemes, the court noted the media coverage in determining that there had been suffi cient disclosure to shareholders. The court found that, beyond ASIC’s indications of satisfaction with disclosure, a further reason for reaching the view that there has been full disclosure was the considerable media scrutiny of the transaction. The media attention was expressly referred to in the ASIC officer’s affidavit.
Spotlight on the role of media in the ACE deed poll development
Eight days before shareholders were to meet to vote on the schemes, Seven Network announced that ACE had agreed to the cancellation of a proportion of the shares that it would receive as payment for WesTrac if certain post-implementation forecasts were not met. ACE’s commitment to the WesTrac forecast was made following negotiations with significant institutional shareholders and by way of deed poll. Although not a change to the terms of the schemes, this deed poll commitment and the significant shareholdersupport it elicited, was certainly of interest to Seven Network shareholders.
ASIC’s regulatory guidance typically requires that at least ten clear days elapse between distribution of any supplementary scheme documentation and the close of proxies for the scheme meeting. While recognising this guidance, the court noted the ‘extensive newspaper coverage’ of ACE’s deed poll in deciding that adjourning or postponing the scheme meetings was not necessary in the circumstances. In arriving at this determination, the court stated that it was open to a shareholder to challenge the appropriateness of the period or terms of the disclosure at the court hearing to approve the schemes. This was a risk that Seven Network accepted in the context of adhering to the transaction’s timetable.
The Seven Network–WesTrac merger has shown that even less than positive media coverage of a scheme of arrangement can be advantageous if it becomes necessary to satisfy the court that all aspects of a scheme, particularly late arising developments, have been sufficiently ventilated in the market to bring them to the attention of shareholders. This can be important in keeping a transaction to a tight timetable.
What role did ASIC play?
At the initial court hearing, the court expressed some reservations about facets of the transaction and referred to cases highlighting ASIC’s role in assisting the court. Perhaps as a result, ASIC was significantly more involved in the Seven Network–WesTrac merger than is typically the case in schemes. Although this meant greater regulator engagement throughout the transaction, the court appears to have derived significant comfort in the later stages of the transaction from ASIC’s expanded role.
In most schemes of arrangement that ASIC does not oppose, its acknowledged role is limited to:
- review of, and comment on, the disclosure documents, and
- production of a statement for the court under section 411(17) that ASIC does not have any takeover avoidance concerns with the transaction.
However, in the Seven Network schemes, ASIC performed these functions as well as:
- making inquiries of two substantial shareholders to ensure that they had not been provided with collateral benefits or undisclosed material information in exchange for their support of the schemes
- making inquiries of Seven Network to confirm the independence of the independent directors transacting on behalf of the company (including the adoption of appropriate protocols) and the appropriate use of proxy solicitation services
- attending the scheme meetings, and
- appearing at each court hearing and providing affidavit evidence setting out detail of ASIC’s oversight of the transaction.
The enhanced ASIC involvement meant that its enquiries had to be addressed by Seven Network concurrently with other transaction workstreams. However, the benefit to Seven Network of this involvement arose when the court decided to approve the schemes. The court appeared to derive material assistance from ASIC’s close scrutiny and apparent satisfaction with the scheme disclosure and process. This satisfaction was indicated by ASIC’s section 411(17) statement and ASIC not taking issue with any of the outcomes of its scrutiny.
The schemes’ starring role
The Seven Network–WesTrac merger also demonstrated the usefulness of schemes of arrangement to effect complex, multi-faceted transactions, even on very tight deadlines.
The transaction involved the restructuring and acquisition of a significant business from a major shareholder in exchange for an increased interest in Seven Network and the restructuring of preference share hybrid capital. This was effected by way of two schemes of arrangement, including separate class meetings for the ordinary shareholders. It also included a fallback partial restructuring of the preference shares through an opt-in restructure to take effect if the preference share scheme failed (but the share scheme was approved).
In this context, the certainty and flexibility offered by schemes of arrangement (compared to takeovers) was critical. In addition, the comparative slowness anecdotally attributed to schemes was addressed by taking steps like pre-preparing and lodging the disclosure documentation with ASIC upon announcement and successfully arguing to maintain the scheduled scheme meeting following the late development.