BNQ Sugar Pty Ltd, Re; Re South Johnstone Mill; Re Tully Sugar [1994] QSC 31

Sc7'--r(oa/. TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME CQURT OF QUEENSLAND CIVIL JURISDICTION KIEFEL J No 51 & 52 of 1994 IN THE MATTER OF THE CORPORATIONS LAW and IN THE MATTER OF BNQ SUGAR PTY LTD and f"iEVISED COP:ES l:.:3SUED State Reporting Bureau j Date ..,Z I J I Applicant IN THE MATTER OF SOUTH JOHNSTONE MILL LIMITED Respondent BRISBANE .. DATE 21/02/94 ORDER \ 4th Floor, The Law Courts, George Street, Brisbane, Q. 4000 Telephone: (07) 227 4360. Facsimile: (07) 227 5532 \ -- 1 of 25 -- 210294 clc/lan (Kiefel J) HER HONOUR: I have heard further content of the further information submissions as to the which was to be made available to shareholders and have now had handed to me a notice and covering letter in each application settled consequent upon rulings made by me. The order that is then necessary seems to me to be one directing the respondent companies to supply the further information to all shareholders, being information contained in the notice and letter to shareholders annexed to the order. The applicant, however, seeks additional orders in the nature of declarations that provisions of the Corporations Law have not been complied with, for instance, that certain material matter was omitted. The declarations are not necessary to state the rights of the parties here, nor is it necessary to state even a particular factual situation. The remedial orders which are made do not follow the making of any declaration. They are simply orders fashioned according to the circumstances and to fulfil the purpose of section 739 which is the protection of the interest of shareholders. Once those orders are made, I do not consider it necessary to make any other orders. It is sometimes thought that even if one cannot point to a distinct benefit flowing to a declaratory order they are often made almost as a course in the event they might prove useful to someone. However, it seems to me that these applications made in the context of hostile takeovers require orders to be made with some precision and that an order which cannot be 2 ORDER 10 20 30 40 50 60 -- 2 of 25 -- 210294 clc/lan (Kiefel J) shown to have present practical benefit ought not to be made, and certainly should not be, where they are capable of misinterpretation as to what the Court meant to convey by the making of them. I decline to make the declaratory orders sought. With respect to the question of costs, the applicant has had success in its application in part. There was, however, significant time taken in cross-examination and in addresses which did not result in any orders. My estimate or, more correctly, my impression, was the time on successful and unsuccessful parts of the application were fairly even. In those circumstances, I propose to order only that the applicant have its costs in connection with the settling of the form of orders, there being no order as to costs as to the balance of the application. The order will be in terms that the respondent pay the applicant's costs of and incidental to the hearing on 18 February and today, to be taxed in the event of dispute. The form of order with respect to the giving of the information seems only to be that which I have outlined in the nature of the direction that it be provided in terms which be annexed to the order. 3 ORDER 10 20 30 40 50 60 -- 3 of 25 -- IN THE SUPREME COURT OF QUEENSLAND HELD AT BRISBANE 5'<.- 9-'t-/ 0 ~. Application No .. 51 of 1994 IN THE MA TIER of the Corporations Law -and- IN THE MATTER of BNQ Sugar Pty Ltd -and- IN THE MATTER of South 1ohnstone Mill Limited Application No. 52 of 1994 IN THE MATTER of the Corporations Law -and- IN THE MATTER of BNQ Sugar Pty Ltd -and- IN THE MATTER of Tully Sugar Limited JUDGMENT - KIEFEL I JUDGMENT DELIVERED: 15th February, 1994 CATCHWORDS: REPRESENTATION: HEARING DATES: Corporations Law - Part B Statements - false in a material particular or materially misleading - omission of material matter - knowledge of shareholders - whether base declarations should be made - ss. 750, 603, 995, 704(3), 647(3), 739 of the Corporations Law. Mr D.j.S. jackson Q.C. and Mr P. O'Shea for theApplicants Mr P. Dutney Q.C. and Mr G. Brandis for the Respondents 8th and 9th February, 1994 -- 4 of 25 -- IN THE SUPREME COURT OF QUEENSLAND HELD AT BRISBANE Application No. 51 of 1994 IN THE MATTER of the Corporations Law -and- IN THE MATTER of BNQ Sugar Pty Ltd -and- IN THE MATTER of South j ohnstone Mill c·· Limited Application No. 52 of 1994 () IN THE MATTER of the Corporations Law -and- IN THE MATTER of BNQ Sugar Pty Ltd -and- IN THE MATTER of Tully Sugar Limited JUDGMENT - KIEFEL I Background and Legislation The respondent companies are unlisted public companies which operate sugar mills in North Queensland. The shareholders:. of each of those companies comprise · ... ,,, either current or former growers and suppliers· of cane to the mill and existing or former employees of the mill. The articles contain restrictions upon the transferability of those shares. The applicant, BNQ Sugar Pty Ltd (also referred to -- 5 of 25 -- 2 as "Tate & Lyle" in the documentation and being the company which successfully acquired the shareholding in the Bundaberg sugar milling operation in recent times) has delivered a Part A Statement to the shareholders of each of the respondent companies with respect to its offer for the acquisition of their shares. The applicant has interests in two other mills in the region. The issues which arise in the applications are for the most part common to the documentation relating to each mill, save for a few aspects with respect to the South johnstone mill which I shall refer to later. It is convenient then, as the matter was argued, to consider first the sufficiency of the Part B Statement with respect to the Tully mill. The respondent company furnished a document entitled "Part B Statement". Included in it is a letter from the Chairman, information from the Directors and an accompanying report by an expert, Graham and Company Advisory Services Limited. The applicant contends that there is not compliance with the requirements of the Corporations Law as to Part B Statements and seeks orders directed to the companies as a consequence. The Part B Statement required by s.647 (and which statement was given to the applicants and to each shareholder, see subs.[l]) is defined by s.603 to mean a "written statement that complies with the requirements of Part B in s.750". Section 750 lists thirteen matters or subjects which must be addressed, the first twelve being particular but the thirteenth of them, entitled "other material information", requires that the statement set out any information material to the making of a decision by an offeree whether or not to accept an offer, being information known by the directors and not previously disclosed to the shareholders. Section 704(3) then provides that an omission of material matter from a Part B Statement amounts to a -- 6 of 25 -- 3 contravention of that subsection as does the inclusion . of matter in a statement that is false in a material particular or materially misleading. An expert's report is subject to provisions in the same terms: see s. 704(5). By s.647(3) reference to a report is not to be made in a Part B. Statement unless the report is set out in the statement and the statement contains or is accompanied by the consent of the author of the report to its inclusion in that form. In addition to the provision of other material information provided by s.750, c1.13, s.647(5) provides that a Part B Statement may also contain such information as the directors think fit (other than information which is false in a material particular or materially misleading). Each of the sections I have·. referred to is contained in chapter 6 of the Corporations Law. Relief consequent upon a contravention of the provisions of that chapter is provided for by s.739 in terms to which I shall later refer. It may be said that the applicant's claim for relief under s.739 is based broadly on the propositions that: (a) (b) there has been a failure to set out information material to the shareholders' decision to accept the offer, being information known to the directors of the respondents and not previously disclosed to the shareholders (s. 750; s. 704(3)); there has been omitted from the expert's report material matter (s.704(5)); (c) there is in both the Part B Statement and the expert's report matter which is false in a material particular or materiallymisleading (s.704(3) and (5)); (d) there has been reference to the contents of another report of the expert but that report is not set out in the Part B Statement (s.647(3)). The applicant also seeks orders which recite the fact of a contravention of s.995, which appears in chapter 7 of the Corporations Law. That section provides that a person shall not engage in conduct that is misleading or deceptive or that is likely to mislead or deceive in circumstances including the making of a valuation of or a () 0 ( \ -- 7 of 25 -- / 4 recommendation in relation to takeover offers. The section itself does not create an offence but clearly an injunction may be granted for contravention (s.1324) and a claim for damages may be made (s.1005) but neither of those remedies are sought. The orders sought in paras. 2 and 3 of the application are in the nature of a declaration without more. The effect of an order in those terms would then be to state that such conduct had been engaged in without stating what if anything the court considered to be necessary as a consequence. The alleged conduct is said to arise from the same factors that will be dealt with in relation to the .alleged contraventions of chapter 6 and any orders necessary to further inform the shareholders will be considered. As a consequence I consider that such orders would have no utility. Rather they would leave the importance to be attached to them as a matter for debate. In this respect the comments by Byrne J. in re: Berne No. 132 Pty Ltd & Anor (1991) A.C.S.R. 630, 634 are apposite. I do not then propose to deal with alleged contraventions of the section. Another question raised by the applicant is as to the application of s. 765 (also appearing in chapter 7) which provides that with respect to representations as to any future matter, and which representation is found to be misleading, a person is deemed not to have had reasonable grounds for making it unless that person adduces evidence to the contrary. However s. 760 limits the effect of that provision to the purposes of chapter 7 and with respect to the matters then arising under chapter 6 for my consideration I cannot see that it places any onus upon the respondents. Some general propositions may be derived from the cases which have dealt with Part A and Part B Statements though clearly each application will require an assessment of the information given or not given and the likely effect of it upon the -- 8 of 25 -- 5 shareholders of a particular company. Many of these cases are collected in the judgment of Mt .. Edon Goldmines (Australia) Ltd v. Burmine Ltd an unreported decision of White J ., Supreme Court of Western Australia, 10 December, 1993. One can expect a Part B Statement to be a criticism of the commercial desirability of the takeover both with respect to the company and from the point of view of the shareholders as investors in it. The purpose of the statement is to enable shareholders to make an informed decision as to where their interests lie and it is important then that legislation of this type be strictly complied with (see the judgment of Connolly J. in re: Rossfield Group Operations Pty Ltd (1981) Qd. R. 372, 376 or, viewing it another way, it is important that the provisions as to its requirements are not judged too narrowly. Whether information must be included depends upon whether it is material to the shareholder's decision. It is not helpful to suggest simply that the Courts will require "full information", for that conveys very little. If the information in question is such that it might reasonably affect the decision of the shareholder as to whether or not to accept the offer then it is Q material to the making of that person's decision and the Court will make orders accordingly: see Rossfield Group Operations Pty Ltd (supra) p.376. The provisions () look to the position of the shareholder and the importance of the information to that person. They do not address, as was suggested at one point, a concept such as a general duty directors might owe shareholders. The sections themselves specify the content of that duty and where they leave further information to the discretion of the directors, they do so with the proviso that it not be misleading and with the overriding obligation that all material information known to them must be disclosed where it has not previously. -- 9 of 25 -- 6 When one is considering whether information is material to the shareholder's decision or whether they might be misled by the information as stated I do not think one can put out of the picture what could reasonably be discerned as matters already within the knowledge of a particular class of shareholders. Here I do not think it could be said that shareholders in the mills could be equated with investors in large publicly listed companies or portfolio investors. They are shareholders having a close association with their mill. Their activities and income are connected with the operations of the mill and they can be expected, for instance, to follow trends or debate what matters such as sugar prices and be conscious of matters generally \. which impact upon prices and the production of cane. One further comment may be made generally with respect to the provisions relating to Part B Statements. They do not require all information that an offeror or its experts might consider appropriate nor do they require that it be presented in a way which the offeror might think to be better balanced. They are not concerned with the question of a fair assessment of the offeror's offer. They are concerned with providing proper information to the shareholders in a way which will not mislead them. As J a cobs J. pointed out in Scott v. Lawrence (1982) 6 A.C.L.R. 579, 597 there is a distinction to be drawn between a question as to whether shareholders are ill-informed or misinformed and whether it might be considered to be desirable to explain a matter more fully. The Report (Tully Sugar Mill) The Part B Statement of the company is described as such on the front sheet "with letter of advice from Graham and Company Advisory Services Limited". Below that appears the advice to, -- 10 of 25 -- 7 "Reject Tate & Lyle's Offer. It is totally inadequate." That advice and the warning not to sign any forms for BNQ (Tate & Lyle) is repeated on the first internal page. The next page is entitled, "The Truth about the Tate & Lyle Offer" which contains a list of statements taken from the Part A Statement and against which is set assertions by the directors, in a column headed "The Facts". The last reference in that column and to which exception is taken concerns the comment on Tate & Lyle's statement that "our offer in total compares well with () other recent sugar mill sales". The comment is to the effect, "This statement is incorrect as can be shown on section 4.4(c) of the Report from our Financial Advisers included in this document". In the chairman's letter to shareholders, which immediately follows, the shareholders are informed that the board has considered the offer, together with a letter of advice from Graham and Company Advisory Services Limited (which company's report I shall refer to as "Graham's") and goes on: "The advice is that the offer grossly undervalues the company and should be rejected by shareholders • .Your Board unanimously supports this advice." The matters required to be dealt with in a Part B Statement, by s.647, are then addressed in the section which follows. Under "other material information" the directors forecast profits for the years 1993/4 to 1996/7 by reference to tonnes of cane crushed and the net profit then likely to be reflected. It is attended however by a note reminding shareholders that the information had already been presented to them in a general way, but for a particular purpose, and that readers are cautioned about factors which affect variations to actual profitability. Included amongst the () (j -- 11 of 25 -- ( 8 factors referred to are variations to the number one pool price for sugar (and an example of a $1 change upon the figure for net profit before tax is provided) and concludes with the advice that the projections must be treated with appropriate caution. The assumptions upon which the projects were based are also listed in some detail and include the receipt of an increase in the amount of land assigned to the mill for cane; that no adverse seasonal conditions will arise, that mill efficiency will continue at its present level and that the number one pool price per tonne will remain at a certain figure throughout those years~ In the introductory paragraph to Graham's report which follows this conclusion is expressed: "In our opinion the offer grossly undervalues the shares in Tully Sugar and should be rejected by shareholders." After setting out information relating to the company and its performance including a reference to its balance sheet and operating results for the year ended 30th April 1993 and the results estimated for the year 30th April 1994, s.4.0 "Evaluation of the (,~ Offers" commences by a discussion of the method of assessment thereafter used: "Our approach has been to consider the question of whether the offerfairly reflects the value of Tully in a takeover situation. It is our belief that this will only be the case if the consideration offered is at least equal to our estimate of the optimum value that could be realised for the Tully shares by alternative means or offeror." In obtaining the value said to be represented by the offer for the mill's "core" business, the report explains that the non-core assets have been valued and then subtracted from the offer. The value then to be implied in the offer for the core activities is then measured against the expert's estimate of future maintainable earnings that might be derived from the core business of the mill. The ratio of the price to those earnings (PER) is then compared with the PER of other, listed, -- 12 of 25 -- 9 companies. A ·consideration of price to earnings then disclosed a multiple of 5.31 times the estimated 1994 core earnings (which earnings are the result of deducting earnings from the assets found to be non-core assets) after tax which is then said to be "totally inadequate". Another illustration utilised in the report at para. 4.4(c) is with respect to other sugar industry takeovers. Here again the relationship of the price offered to earnings or forecast profits is given.· Additionally an assessment of those offers as against the net tangible asset value of core assets in those companies is referred. The ratio of the offer, orprice, to net tangible assets is expressed to be 0.62 but this has been conceded to be an error and should be 0.73 and without more I would have thought the shareholders ought to be informed of this. Allegations concerning PER The statements in the Part B Statement, that the offer grossly undervalues the shares or is totally inadequate (and that it does not compare well with other mill sales) are said to be misleading and to omit material matter, since they are based upon analyses and comparisons iri the report which are themselves misleading and absent either necessary information or qualifications. The most convenient method () 0 of referring to each of these complaints is, initially, by reference to the subject Q matter raised. With respect to the analysis of "core assets" a number of complaints are referred to in the written submissions. Issue was taken with respect to the amount allowed for surplus working capital since it leaves only $2 million for working capital. Whether such a surplus could be readily realised depending largely upon the view one took as to the nature of assets disclosed in the balance sheet, and whether $2 million is sufficient for working capital was the subject of a difference of opinion --- - --------- -- 13 of 25 -- 10 as between the experts. The figure disclosed to shareholders is one expressed as an opinion following reference to the operational expenses of the company. It is not, as I later consider with respect to conclusions to be drawn from comparisons, of such a nature as to require further exposition to enable shareholders to be sufficiently informed. It is noteworthy that management is said to concur in the figure, and this has not been the subject of attack. ·I am not satisfied that it has no reasonable basis or is shown to be necessarily erroneous. A similar approach can be taken to the attack on Graham's conclusion as to the effect of the exclusion of some non-core assets on derived earnings. The adoption of the operating profit (after tax) figure for the year to 30th April 1994 as the best indication of future maintainable earnings was said to be either wrong or misleading (without further qualification as to the price for sugar reflected in it). At the time of the report the crushing season had concluded and all that remained to be done to the end of the financial year was maintenance works and the like. All necessary prices and expenses were known. The question then is whether the sugar price and quantities for cane for 1994 were reliable as a basis for future projections. The importance of this figure in the evaluation of the price offered cannot be overlooked. Mr Annand's complaint was that, viewed to date, the 1994 figures can be said to be a "record" year both concerning the size of the crop and the amount of the price and that a table reflecting 10 years' historical data for these factors should have been provided. In turn however such a table was subject to attack on the basis that the historical information was not provided in current terms. Further, it was pointed out that if one were to be entirely accurate about the matter one would -- 14 of 25 -- 11 have to explain the differences in land assigned, differences in mill efficiency coefficients etc .. to explain the figures for the previous years. I do not find it difficult to assume that the fact that 1994 has been a good year for cane is well known to the shareholders. Nor do I have difficulty in accepting that the shareholders will know that the price of cane and the size of the crop is variable, that it has been in the past and will be in the future. Further, it must be recalled that the shareholders are taken to read the Part B Statement as a whole. The directors themselves, in the information they provided to the shareholders, had projected an increase in profits with the cautionary note as to world sugar prices and exchange rates I have referred to. Mr Annand also pointed out that the forecast by A.B.A.R.E. is not so optimistic and in fact predicts a decline. It should be noted however that that report only became available after the preparation of the Part B Statement and it could not be said that this information was known either to the author or to the directors of the respondent companies. As will almost invariably be the case with respect to projections as to world prices for a commodity such as sugar it is impossible to say that the figure is false. The question seems to me to be whether the shareholders could be said to likely be misled by reference to it without some qualification as to its reliability. The fact that the calculation of future maintainable earnings is based upon 1994 figures is made perfectly clear in the report. It would be apparent then to shareholders reading it that if the assumption about price is wrong, the opinion later expressed could not be good. As I have said, shareholders in such an industry can be taken to have an awareness of the volatility and variability of prices and the factors that 0 0 -- 15 of 25 -- 12 influence them. The directors' statements serve to remind them of this and of the degree to which they impact upon the profitability of the company. It is convenient at this point to deal with a related submission, that by the expert Mrs Micalazzi, that a "sensitivity analysis" ought to be provided . to explain the very features regarding price I have just referred to. For the reasons I have just outlined, and whilst I could see that such an analysis may be useful and indeed essential with respect to other companies, I do not think that could be so here. Comparisons The derived PER multiple of 5.31 is compared with a number of listed companies which, the applicant says, are not properly comparable when regard is had to their different operations and their financial background. The result then by showing the markedly different ratio of price to earnings in those companies is misleading, at least without explanation or qualification. There is no dispute however that it Is proper to use the market as a cross-check. Indeed there was no dispute that the exercise of showing price to earnings was a valid one and from there it would seem to follow that the only place to test it would be the market. There was some debate about whether the multiple relating to an unlisted company could be compared with that with respect to a listed company but this states the proposition too broadly. It may be that features relating to the companies operations or financial background make them not truly comparable, but it is not .clear to me that the fact that they are listed concludes any question. There is some reference in the report of Graham's to two companies which conduct sugar mills and a qualification that the larger is a very diverse company in its activities and that the Maryborough sugar mill is "more comparable" so that -- 16 of 25 -- f.- __ 13 shareholders reading it may infer some level of difference. However the applicant's experts have highlighted areas in which it is said any reasonable comparison fails. They may be summarised as follows: (a) The PER for Tully is calculated on core assets whereas other companies, most notably Maryborough, has not been; (b) The PER for Tully was based upon projected 1994 earnings whereas other companies were based on the year 1993 or earlier. By summarising the matter referred to in (a) I do not intend to dismiss the debate which took place as to whether or not some assets, notably other lands, could be regarded as truly core to the activities of Maryborough or not. The importance seemed to me that exclusion of it has the potential to significantly affect the comparison in the circumstances where Maryborough is highlighted by the report as perhaps the most comparable from the shareholders' point of view. Mr Graham's response to these matters was to say that the ratios in any event were so divergent (and that of the· offer of Tate & Lyle by comparison so low) it could not ·alter his conclusion. The question however is whether the information, if provided to the shareholders, might reasonably affect their decision as to whether to accept. The ratio of price to projected earnings serves as an indication of a rate of return. The relationship of the applicant's offer expressed in this form to those of other companies in the marketplace is likely to be a focus of the report for shareholders. It follows in my view, both from the nature of the information it conveys and its importance then to shareholders, that any marked difference in the ratios expressed is a matter which may reasonably affect their decision whether or not to accept the offer. 0 () 0 -- 17 of 25 -- ( 14 The calculations carried out by Mr Annand for Tully show that if one takes the figures for profit in the same year (say 1993) and the earnings on both core and non-core assets the PER disclosed is 13, not 5.31. The alternative approach, namely to treat a listed company in the same manner as Tully reduces the margin further. I do not discount the attack in turn upon Mr Annand's inclusion of some figures in his exercise. It seems clear enough however that there will be differences disclosed if the years are the same and if different assets are included. It is true, as Mr Graham says, that there will be differences of opinion as to how particular assets will be treated. But the topic, and the conclusions drawn from it, is I consider likely to be too important to the shareholders to provide one view (which I take to be one honestly held) without an explanation of its basis and including a reference to how the exclusion of those assets would affect this ratio. One can view it either as an omission of material matter, or that the information in its present form has the potential to mislead. Similarly the multiple for at least Maryborough in the same year of earnings should be reflected, and with at least a general advice with respect to the others as to the year of earnings concerned. Beyond these observations I have not proceeded, mindful that counsel have requested the opportunity of addressing the form of relief. Comparison with other takeovers At para. 4.4(c) of the report reference is made to a report of the Macquarie Bank which, it is said, states that in May 1987 when CSR acquired the balance shareholding in Pioneer Sugar Mills, that CSR paid "33.3 times its reported annual -- 18 of 25 -- 15 earnings (PER)". Again, the importance of such a figure dramatically different from the PER derived from Tate & Lyle's offer is obvious. Moreover it is strongly underlined here since it is this section that is relied upon at the beginning of the Part B Statement as an answer to Tate & Lyle's assertion that the offer compares well with other recent mill sales. That Bank's report in fact states: "The offer price represented a P/E of 33.3. times Pioneer Sugar's historical earnings and 18.4 times annualised latest available. half-year results". It could not be in any way apparent in Tully's Part B Statement that the comparison is of historical as to projected earnings. Further, as it stands the summary of what has been said in the Macquarie Bank Report is I consider misleading. The true nature of the comparison and a faithful reference to the Macquarie's Bank Report should be addressed. Further complaint is made with respect to the references in this section to the ratios reported of the two North American companies in 1988/89. The bank report does add a cautionary note as to the use of the comparisons and it is said the same was necessary here. However the fact that they are companies operating in North America is stated in the Grahams report and I would think that any possibility of differences in economies in that company would occur to shareholders. It is, unlike the other references in that paragraph, not a matter upon which shareholders are asked to focus in particular. I have noted above the error, inadvertently made, in the ratio of price to NT A reflected in Tate & Lyle's offer, in para. 4.4(c) of the report and that its correction should be notified. Beyond that it seems to me that the only further information or explanation necessary to be provided to shareholders is with respect to the choice of 0 -- 19 of 25 -- 16 core and non-core assets in this exercise and with respect to Bundaberg and CSR. Again, the conclusion sought to be drawn and compared in this analysis is a matter of such importance that its bases are matters which may materially affect shareholders in their decision-making. Omission of reference to other recent mill sales It is not suggested that material information regarding other sales was known to the directors themselves, although one might infer that at least in a general way they would have known of the sales but not perhaps of the multiples to be discerned after the exercise carried out by the experts. The reference in cl. 4.4(c) is concerned principally with Tate & Lyle's takeover of Bundaberg Sugar which appears to be most recent. It is said to be misleading because a reference to other mills is not included. It seems to me however that this ground of complaint is simply not made out. Of the mills identified as necessary for mention, Babinda, Mourilyan, Moreton and Pl~ystowe, I accept on Mr Graham's evidence that the Babinda Mill l. would not be useful as a comparison given its particular circumstances at the time of acquisition. The examination of Mr Graham on this aspect was directed principally to the quality of his conduct in selecting information or in the exercises he then undertook in evaluation. It did not however persuade me that there was in fact information contained in those reports which would be material to these shareholders, and as I have said I consider no useful purpose would be served by undertaking such an examination so that a bare declaration could be made. -- 20 of 25 -- 17 Other Options Tully is presently an unlisted company and as I have said its articles restrict the transferability of its shares although the Board in November 1993, no doubt as a response to the takeover offer, obtained advices from Graham and Co Advisory Services Limited as to how best to establish a market in which a proper value for the shares could be obtained, if possible without loss of control to the growers. In the page headed "The Truth about the Tate & Lyle Offer" in response to Tate & Lyle's assertion that BNQ Sugar believes that the shareholders would be unlikely to receive a better price, it is said that the directors are looking at opportunities to provide a better market for the shares and that the future value is likely to be well above the BNQ sugar offer value. The latter remark must I think be understood in the context that the directors are consistently asserting (as does the report of Graham's) that the offer is totally inadequate. The letter from the chairman which follows refers to the question of merger with South johnstone "as well as examination of alternative means for providing a better market in which the shares can be traded to more effectively reflect their proper value, which is far greater than the price being offered by Tate & Lyle" and goes on to explain that one option being considered is listing, but that all proposals will of necessity be referred to shareholders as the matter progresses. There are I consider two aspects to the complaint which require consideration. Firstly, the options referred to in the letter and in the report are unqualified. It is said that it is misleading to refer to other alternatives without suggesting a basis for achievability. In one respect in particular, namely listing "possibly with a structure that ensures cane-growers retain control" (as referred to in the report) it is said c 0 -- 21 of 25 -- . ,, 18 qualification is required since listing on this basis is unknown to law. Legislative intervention would be required. Although this has been known to occur in a few areas of banking and industry nothing could suggest that it is a likelihood._ The question as to how control (and in varying forms and degrees) might be obtained is addressed in the report of 16 November 1993 obtained by the Directors. Indeed it contains a reasonably comprehensive discussion as to the options listed in the Part B Statement and accompanying report. I consider reference to it in the ( Part B Statement to be a reference to an expert's report and on that basis alone would be minded to order it be provided to shareholders. Without conceding that it is caught by the section the respondent has indicated in any event its preparedness to furnish it. The second aspect is whether statements by the directors stand as misleading since the alternatives are relied upon to support the possibility of a better price available on the offer. On one view, the applicant argues, it would be necessary to furnish the value or a range of values of what might be achieved. There is nothing in the Corporations Law concerning Part B Statements which requires evaluation to be provided and it could not be said that valuations are supplied as a matter of course in takeovers. The assertion cannot on the present material be shown to be false and indeed to do so would probably require the applicant itself to provide evaluation of the shares. Understandably neither party has a wish to enter upon this task. The question is I think simply whether the statements made would mislead the shareholders without a reference to some dollar value. Shareholders will now read the statements in the context of the report of 19 November 1993 from which it will be apparent what the practical options are and that the purpose is what Grahams call -- 22 of 25 -- 19 achieving .the "potential value" of the shares. On a fair reading of the whole of the Part B Statement and the report contained in it the shareholders would understand that no particular value is being ascribed and that the reference to a better value is simply another way of expressing the basic view of the directors and the expert that the offer made is so low that they believe shareholders must achieve a higher price if the shares were traded on the open market with .or without a merger with the other mills. It would be clear to shareholders that the directors and the experts seek to make out this stance by reference to the comparisons they later draw in the report to the other listed companies. The importance and materiality of that information to the shareholders in their decision-making I have already adverted to and . indeed in some respects I have considered further explanation as to these comparisons to be necessary. Having done that I do not however consider that the shareholders will be misled by the advices and expressions of opinion standing in their present form. South Johnstone Mill Ltd C> () 0 There are some differences in the background of this company and in the information provided (for instance projections for p~ofit are not as extensive and the Q calculation of earnings is done on a cash flow basis). For the most part however it is not suggested that these differences require a wholly separate consideration of South Johnstone. The same comments as to the provision of further information with respect to the comparisons having regard to the ratio of price to earnings, the consideration of net tangible assets to the offer and as to options apply here. The majority of· the other matters listed. !>Y way of complaint I consider to arise principally out of differences of views held by the experts and do not amount -- 23 of 25 -- 20 to either omission of material matter or false or misleading statements in the existing report. Again attack is made upon the base figure utilised for working capital and what is regarded as surplus working capital. As I understand it however Mr Graham says that whilst the mill is operating in its present state it needs cash reserves but these would not be required in the event of takeover by Tate & Lyle and therefore can be considered as surplus working capital'in the exercise. And, whilst it is true that the income and expenditure of the mill differs from that of Tully it has not been made clear to me that utilising the same amount for working capital is wholly erroneous. There is however one aspect upon which it is said that the statements made in the Part B Statement are said to be wholly in error. It is said that it would take only 3. 72 years for South Johnstone to generate sufficient funds to repay Tate & Lyle for its outlays. This, it is said, must be wrong since cash flow must obviously also be used for expenditure and on Mr Annand's calculations this would take some 17.5 years. This might be a matter material to shareholders in coming to their decision. This application was, having regard to the requirements of time, argued in a way which focussed upon the principal matters of dispute and I have not heard submissions on this aspect from the respondent. If the applicant presses this point I consider I ought to receive further submissions before determining this particular question. Relief I have otherwise indicated the areas in which I consider clarification or further information should be provided to shareholders. I have been asked by counsel to leave the matter stand there so that submissions can be made as to the -- 24 of 25 -- .J 1 21 1 1 1 1 appropriate form of such relief. It will be discernible from what I have said above 1 that I consider the further information can be provided in a supplementary way and 1 perhaps by letter, incorporating the further information and attaching the report of 1 16 November 1993. I do not however consider that the general assertions made by the directors and the expert and which are the subject of complaint otherwise need to be dealt with. Rather the further information is directed to particular topics 1 1 1 1 1 1 (' 1 ~· which will affect the shareholders' view of those general statements. (-') 1 '() J (j 1 '1 I 11 I ___ !~ -- 25 of 25 --