Austar United Communications Limited; in the matter of Austar United Communications Limited [2011] FCA 1419 (12 December 2011)

Last Updated: 13 December 2011

FEDERAL COURT OF AUSTRALIA

Austar United Communications Limited; in the matter of Austar United Communications Limited [2011] FCA 1419

Citation:		Austar United Communications Limited; in the matter of Austar United Communications Limited [2011] FCA 1419
Parties:		AUSTAR UNITED COMMUNICATIONS LIMITED ACN 087 695 707 AUSTAR UNITED
File number(s):		NSD 1953 of 2011
Judge:		JACOBSON J
Date of judgment:		12 December 2011
Catchwords:		CORPORATIONS – Scheme of Arrangement – first Court hearing – overview of scheme and its conditions precedent
Legislation:		Corporations Act 2001 (Cth), ss 260B 260A 208 and 411 Foreign Acquisitions and Takeovers Act 1975 (Cth)
Cases cited:		Re APN News and Media Limited [2007] FCA 770; (2007) 62 ACSR 400
Date of hearing:	8 December 2011
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	41
Counsel for the Plaintiff:	PM Wood with J Williams
Solicitor for the Plaintiff:	Freehills
Counsel for Liberty Global Inc and LGI BidCo Pty Ltd:	PJ Brereton with FT Roughley
Solicitor for Liberty Global Inc and LGI BidCo Pty Ltd:	Allen & Overy
Counsel for the Foxtel Management Pty Limited (as agent of the Foxtel partnership and Telstra Media Pty Ltd and Sky Cable Pty Limited in their capacity as partners of the Foxtel partnership):	RM Foreman
Solicitor for the Foxtel Management Pty Ltd (as agent of the Foxtel partnership and Telstra Media Proprietary Ltd and Sky Cable Pty Ltd in their capacity as partners of the Foxtel partnership):	Allens Arthur Robinson

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1953 of 2011

IN THE MATTER OF AUSTAR UNITED COMMUNICATIONS LIMITED ACN 087 695 707

AUSTAR UNITED COMMUNICATIONS LIMITED ACN 087 695 707 Plaintiff

JUDGE:	JACOBSON J
DATE OF ORDER:	12 DECEMBER 2011
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) (Corporations Act):

(a) the Plaintiff, AUSTAR United Communications Limited ACN 087 695 707 (AUSTAR) convene a meeting (Scheme Meeting) of the ordinary shareholders in AUSTAR (other than Liberty Global Inc. (LGI) or any of its subsidiaries or controlled entities or any member who holds shares in AUSTAR on behalf of, or for the benefit of, LGI or any of its subsidiaries or controlled entities to the extent of that holding) (Scheme Shareholders), for the purpose of considering and, if thought fit, approving (with or without modification) a scheme of arrangement (Scheme) proposed to be made between AUSTAR and the Scheme Shareholders, the terms of which are contained in the Explanatory Statement, a copy of which is at Tab 1 of Exhibit DEW2 (the Scheme Booklet);

(b) the Scheme Meeting be held at 3:00pm (Australian Eastern Daylight (Savings) Time (AEDT)) on 17 February 2012, at AGL Theatre, Museum of Sydney, 37 Phillip Street, Sydney, NSW 2000;

(c) Timothy David Downing, or failing him, Roger Michael Amos, be Chairperson of the Scheme Meeting;

(d) the Chairperson of the Scheme Meeting have the power to adjourn the Scheme Meeting in his absolute discretion;

(e) at the Scheme Meeting, a Scheme Shareholder will be entitled to one vote for each fully paid ordinary share in the capital of the Plaintiff that the person is registered as holding at 7.00pm (AEDT) on 15 February 2012;

(f) the Scheme Booklet, amended in accordance with the document at Tab 2 of Exhibit PXP-1 of the Affidavit of Philip Podzebenko affirmed 8 December 2011, be approved for distribution to the Scheme Shareholders;

(g) on or before 20 December 2011 there be dispatched by pre-paid post, or in the case of a member whose registered address is outside the country by prepaid air-mail, addressed to the relevant addresses set out in the register of members of the Plaintiff:

(i) a document substantially in the form of the Scheme Booklet, amended in accordance with the document at Tab 2 of Exhibit PXP-1 of the Affidavit of Philip Podzebenko affirmed 8 December 2011;

(ii) a proxy form substantially in the form of the document at Tab 3 of Exhibit DEW-2;

(iii) a form titled “Direct Credit – Scheme Consideration” substantially in the form of the document at Tab 4 of Exhibit DEW-2; and

(iv) an envelope addressed to Computershare Investor Services Pty Limited; and

(h) the time by which proxy forms for the Scheme Meeting must be returned is 3:15pm (AEDT) on 15 February 2012.

2. Regulations 5.6.11, 5.6.11A, 5.6.12 and 5.6.13A to 5.6.36A (inclusive) of the Corporations Regulations 2001 (Cth) shall not apply to the Scheme Meeting.
3. On or before 12 February 2012, the Plaintiff publish a Notice of Hearing substantially in the form of Annexure ‘A’ hereto in The Australian newspaper and the Plaintiff is relieved from compliance with Rule 3.4 of the Federal Court (Corporations) Rules 2000 (Cth) to the extent necessary.
4. The proceedings be stood over to 10.15 am on 21 February 2012 before Justice Jacobson for the hearing of any application to approve the Scheme.
5. There be liberty to apply on one day’s notice.
6. These Orders be entered forthwith.
   

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

ANNEXURE A

NOTICE OF HEARING TO APPROVE ARRANGEMENT

TO ALL the Creditors and/or Members of AUSTAR United Communications Limited ACN 087 695 707

TAKE NOTICE that at 10.15 am on 21 February 2012 the Federal Court of Australia at Law Court Building, Queen’s Square, Sydney will hear an application by AUSTAR United Communications Limited seeking approval of an arrangement between AUSTAR United Communications Limited and its members (other than Liberty Global Inc. (LGI) or any of its subsidiaries or controlled entities or any member who holds shares in the Plaintiff on behalf of, or for the benefit of, LGI or any of its subsidiaries or controlled entities to the extent of that holding) to be considered and, if thought fit, approved at a meeting of the members of AUSTAR United Communications Limited to be held on 17 February 2012.

If you wish to oppose the approval of the compromise or arrangement for AUSTAR United Communications Limited, you must file and serve on AUSTAR United Communications Limited a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the Plaintiffs at their address for service at least one day before the date fixed for hearing of the applications.

The address for service on the Plaintiffs is: c/- Freehills, MLC Centre, 19 Martin Place, Sydney NSW 2000 (Reference: Luke Hastings:27E)

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1953 of 2011

IN THE MATTER OF AUSTAR UNITED COMMUNICATIONS LIMITED ACN 087 695 707

AUSTAR UNITED COMMUNICATIONS LIMITED ACN 087 695 707 Plaintiff

JUDGE:	JACOBSON J
DATE:	12 DECEMBER 2011
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1. On 8 December 2011, I made orders at the first Court hearing of an application to approve a scheme of arrangement between AUSTAR United Communications Limited (“AUSTAR”) and its ordinary shareholders other than Liberty Global Inc (“LGI”) and any of its subsidiaries or members who hold shares in AUSTAR on behalf of or for the benefit of LGI.
2. LGI presently holds, through its subsidiaries, 54.15% of the ordinary shares in AUSTAR. Under the proposed scheme, the minority shareholders will transfer all their shares in AUSTAR to LGI or a subsidiary. The effect of the scheme is therefore that LGI will increase its present majority holding of 54.15% of AUSTAR to 100% ownership by acquiring the interests of the minority shareholders.
3. AUSTAR is a public company listed on the ASX. It carries on the business of a subscription television broadcast operator. It is the leading provider of subscription television services to regional and rural Australia (excluding Western Australia but including Hobart and Darwin via the Optus satellites).
4. AUSTAR’s majority shareholder, LGI, is a leading international cable operator providing video, broadband internet and telephony services and is listed on the NASDAQ exchange in the United States.
5. The scheme is a first step of a broader transaction, the ultimate effect of which, if implemented, will be that FOXTEL will acquire 100% of AUSTAR’s ordinary shares. FOXTEL is a partnership between Telstra Media Pty Limited and Sky Cable Pty Limited. FOXTEL Management Pty Limited acts as agent for the partnership and a reference in these reasons to FOXTEL includes subsidiaries of FOXTEL Management Pty Limited as may be appropriate.
6. FOXTEL is a major operator in subscription television broadcast services in Australia such that the merger of FOXTEL and AUSTAR appears to provide FOXTEL with considerable synergies that are reflected in the amount of the consideration payable to the minority shareholders of AUSTAR under the scheme.
7. If the scheme is implemented, the minority shareholders of AUSTAR will receive scheme consideration of $1.52 in cash for each AUSTAR share held on the record date. The cash amount will be reduced by the per share value of any dividend or return of capital (if any) made before the Implementation Date.

Overview of the Transaction and the Scheme

8. The substance of the relevant transactions may be stated briefly.
9. First LGI, through a company described in the transaction documents as LGI Bidco will acquire all of the AUSTAR shares held by the minority shareholders (ie AUSTAR shareholders other than LGI Group Members) under the proposed scheme of arrangement for $1.52 per share.
10. Funding for the scheme consideration (which is in total approximately $886m) will be provided under a loan facility from FOXTEL to LGI. However, LGI has the right to choose not to use the FOXTEL funding so long as it obtains funding from a third party financial provider.
11. Second, following implementation of the scheme, the interests of LGI and LGI Bidco in AUSTAR will be restructured in a way which will be advantageous to LGI.
12. Third, FOXTEL will acquire the LGI Group’s interests in AUSTAR for $1.52 per share.
13. If the scheme becomes effective, AUSTAR will be deleted from the ASX. Initially, it will be a wholly owned subsidiary of LGI. Following the completion of the FOXTEL acquisition, AUSTAR will be a wholly owned subsidiary of FOXTEL.

Provision of the Scheme Consideration

14. If the Scheme is approved at the meeting, the FOXTEL funding will be lent to LGI Bidco. The funds will be deposited into a trust account before the second Court hearing.
15. If LGI elects not to use the FOXTEL funding, it is required to give a substitution notice to AUSTAR confirming that it has funding commitments under a substitute funding agreement sufficient to pay the whole of the scheme consideration.
16. Thus, whatever the source of funding, the moneys will be paid into the trust account to be able to meet the scheme consideration prior to the Implementation Date.

Independent Expert Report

17. Grant Samuel and Associates Pty Limited has been appointed by AUSTAR as the independent expert and has provided a draft report. Grant Samuel has expressed the opinion that:
    • the scheme is in the best interests of AUSTAR shareholders in the absence of a superior proposal
    • the scheme is in the best interests of the minority shareholders of AUSTAR in the absence of a superior proposal
    • the FOXTEL acquisition is fair to the minority shareholders.
18. In coming to the view that the scheme is in the best interests of the shareholders, and the minority shareholders, Grant Samuel has estimated that the full underlying value of AUSTAR, including a premium for control is in the range of $1.23 to $1.40 per share. The scheme consideration exceeds the top end of Grant Samuel’s estimate by 8.6%. Grant Samuel points out that this is unusual but the report observes that this reflects the extent of the synergies available under the merger and the extent to which FOXTEL is willing to “pay away” some of this value to AUSTAR shareholders.
19. Grant Samuel concludes that, accordingly, the scheme is fair to the minority shareholders and that, being fair, it is also reasonable.
20. As to the fairness and reasonableness of the FOXEL acquisition from LGI, Grant Samuel points out LGI receives the same consideration as the minority shareholders of AUSTAR. However, as Grant Samuel observes, LGI agreed to the overall proposal subject to receiving an “efficient transaction outcome.” This is a reference to the tax benefits available to LGI which are subject to an acceptable private ruling letter from the United States IRS.
21. This issue is sufficiently disclosed in the Grant Samuel Report. I accept Mr Wood’s submission that it does not have any further relevance to the issues raised at the first Court hearing.

Conditions Precedent

22. The proposal is subject to a number of conditions precedent. The conditions include:
    • before 8 am on the second Court hearing date, 21 February 2012, approvals are to be received from the Australian Competition and Consumer Commission for the transaction to proceed;
    • Approval is also to be received from the Foreign Investment Review Board under the Foreign Acquisitions and Takeovers Act 1975 (Cth);
    • LGI is to receive a private ruling from the United States Internal Revenue Service relating to United States federal income tax treatment of the transaction;
    • Shareholder approval and Court approval under s 411 of the Corporations Act 2001 (Cth) (“Corporations Act”).
    • Shareholders passing a special resolution under s 260B of the Corporations Act approving the giving of financial assistance by AUSTAR to LGI and FOXTEL under the funding arrangements associated with the proposal.
    • Shareholders passing an ordinary resolution for the purposes of s 208(1)(a) of the Corporations Act for the giving by AUSTAR of financial benefits to related parties, namely LGI and FOXTEL in connection with the funding and other arrangements forming part of the proposal.
    • The passing of a special resolution to approve the change of status of AUSTAR to a private company.
23. The meetings required to satisfy the three last-mentioned conditions will be held immediately after the scheme meeting.

The financial resolution and the related party resolution

24. The reason why the financial assistance resolution is required relates to the funding to be provided by FOXTEL (or the substitute financier nominated by LGI) for the cash consideration to be paid to the Scheme Shareholders.
25. AUSTAR has agreed under the FOXTEL Funding Agreement to guarantee repayment of the funds lent by FOXTEL to pay the scheme consideration and to grant a charge over its assets to secure LGI’s and AUSTAR’s own obligations under the FOXTEL Funding Agreement.
26. AUSTAR will similarly guarantee and secure LGI’s obligations under any substitute funding.
27. By guaranteeing and providing security in support of the loan to LGI to fund the scheme consideration, AUSTAR will be providing financial assistance for the acquisition of its own shares within the meaning of s 260A of the Corporations Act.
28. The provision of the guarantee and security is also a related party benefit which requires approval under s 208(1)(a) of the Corporations Act.
29. Financial assistance and related party benefits also arise in a second aspect of the transaction. Following implementation of the scheme, AUSTAR will be a wholly owned subsidiary of LGI. It will acquire the LGI subsidiary, LGI Bidco, which will hold the AUSTAR shares to be acquired from the Scheme Shareholders. AUSTAR will also assume, by novation, LGI Bidco’s obligations under the FOXTEL Funding Agreement (or substitute funding agreement if applicable). These obligations arise under the restructure to which I referred above and amount to financial assistance by AUSTAR to LGI Bidco for the acquisition of shares in AUSTAR pursuant to the scheme or to FOXTEL under the FOXTEL acquisition. They are also a related party benefit.
30. I accept the submissions of counsel for AUSTAR that the steps referred to above are not of concern to me in relation to the orders convening the scheme meeting. This is because the financial assistance resolution and the related party resolution are conditional upon the scheme being approved. Moreover, Mr Wood took me to the clauses in the Loan Agreement and the Fixed and Floating charge which provide that AUSTAR has no liability in respect of the Secured Money whether under the Charge or the Guarantee until the date which is defined as the AUSTAR Effective Date. That date is the later of the dates, that is 14 days after notice of the Extraordinary General Meeting (“EGM”) resolutions are lodged with ASIC and the date on which the scheme consideration is deposited into the trust account.
31. It follows that at the time of the provision of the financial assistance or related party benefits, the Scheme Shareholders will be protected by the fact that the Scheme Consideration will be held in the Scheme Account on trust for the Scheme Shareholders.

Other Matters

32. The other matters which arose on the application were fully addressed in the written submissions. I will refer to them only briefly.

No Performance Risk

33. For reasons referred to above, the payment of the scheme consideration into the Scheme Account to be held in trust for the Scheme Shareholders fully addresses the issue of performance risk. The authorities were referred to by Lindgren J in Re APN News and Media Limited [2007] FCA 770; (2007) 62 ACSR 400 at [23] (“APN News”).

Exclusivity

34. The Implementation Deed contains an exclusivity provision which includes a “No Shop”, a “no talk” and a “no due diligence” restriction.
35. The restrictions are sufficiently disclosed in the scheme booklet and are subject to the usual fiduciary carve-out.
36. The exclusivity period seems to me to be a reasonable one.

Break fee

37. A break fee or “reimbursement” fee of approximately $19.3m is payable by AUSTAR to FOXTEL in certain circumstances. The only circumstances in which the fee is payable are, relevantly:
    • if either of the two independent AUSTAR directors changes adversely, or withdraws, his recommendation in favour of the scheme; or
    • if before 29 February 2012 a third party announces a superior proposal and LGI sells its AUSTAR shares into that proposal within 12 months of the announcement.
38. Importantly, the reimbursement fee is not triggered by the minority shareholders of AUSTAR failing to approve the scheme at the meeting. I am therefore satisfied that the existence of the break fee provision would not be “likely to coerce offeree shareholders into agreeing to the scheme, or to deter companies from making a competing offer”: see APN News at [52].
39. The concerns expressed by Lindgren J in APN News at [55] are sufficiently addressed in the evidence. The short answer is, as Mr Wood observed, the evidence establishes that FOXTEL would not have been prepared to treat unless such a provision were included.

Section 411(17)

40. It is now well settled that the issue raised by s 411(17) of the Corporations Act is one to be addressed at the second court hearing.

Orders

41. For the reasons set out above, I made orders convening the scheme meeting in accordance with the draft orders handed to me by counsel.

I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate:

Dated: 12 December 2011