National Can Industries 01(R) – Review Panel Confirms Initial Panel Decision [17/11/2003] The Takeovers Panel

Monday, 17 November 2003

NATIONAL CAN INDUSTRIES 01(R) - REVIEW PANEL CONFIRMS INITIAL PANEL DECISION

The Panel advises that the National Can Industries 01(R) Review Panel (Review Panel) has confirmed the decision of the National Can Industries 01 Panel (Initial Panel) in relation to the affairs of National Can Industries Limited (NCI).

Visy Industrial Packaging Holdings Pty Ltd (VIPH), a substantial shareholder in NCI, alleged that unacceptable circumstances arose from an implementation agreement under which ESK Holdings Pty Ltd (ESK) would acquire control of NCI through a scheme of arrangement. It sought among other things, a declaration of unacceptable circumstances and orders for cancellation of the implementation agreement, repayment of a break fee (First Break Fee), cancellation of an agreement to pay a further break fee (Second Break Fee) and variation of a modification provided by ASIC.

ESK is a company controlled by Michael Tyrrell, the managing director of NCI, and is associated with Tyrrell family members and companies (Tyrrell Interests) which together have a controlling interest in NCI.

On 17 October 2003, the Initial Panel declined to make any orders and agreed to accept undertakings from ESK (Undertakings):

  1. to increase the consideration offered under the scheme of arrangement by 1.5 cents per NCI share so that the total offer price is $1.565 per NCI share;
  2. to repay the First Break Fee to NCI if, before the scheme proposal is considered by shareholders, another person announces a bid for NCI with a cash value in excess of $1.565 per NCI share which subsequently leads to a change in control of NCI; and
  3. not to enforce its right to receive or accept payment from NCI, of the Second Break Fee;

and an undertaking from NCI, subject to ESK’s undertaking as set out in (c) above, not to pay all or any part of the Second Break Fee to ESK.

The Initial Panel found the agreement to pay the First Break Fee unacceptable because of the circumstances in which it was entered into, despite the immateriality of the amount. However, the Initial Panel found that the Undertakings overcame the adverse effects of the payment of the First Break Fee on competition and efficiency in the market for shares in NCI and generally.

On 20 October 2003, VIPH sought a review of the decision of the Initial Panel, to accept the Undertakings. VIPH sought an order either:

  1. setting aside the decision and substituting a new decision to impose orders so that:
    1. ESK was required to repay the First Break Fee immediately; and
    2. ESK would only receive payment of the First Break Fee if NCI shareholders who were not associated with the Tyrrell Interests approved the payment of the First Break Fee (by way of ordinary resolution); or
  2. setting aside the decision and substituting a new decision to impose appropriate orders that will remedy the unacceptable circumstances which were found to exist by the Initial Panel.

VIPH’s review application asserted that the Undertakings did not remedy the effects caused of the payment of the First Break Fee as described by the Initial Panel. Specifically, it asserted that the Undertakings enable unacceptable circumstances to continue by not allowing the non-associated shareholders of NCI to vote to consider whether the First Break Fee should have been paid.

National Can Industries 01(R) Decision

The Review Panel took into account that ESK is part of the Tyrrell Interests, which together have a controlling shareholding in NCI, and that the acquisition proposal was initiated by ESK to take NCI private under ESK’s control. In those circumstances, the agreement of ESK and the directors of NCI to pay the First Break Fee would have been unacceptable in the absence of the Undertakings, where the First Break Fee:

  1. was payable in circumstances other than rejection of the acquisition proposal by shareholders; and,
  2. in particular, could become payable upon withdrawal of the recommendation of the acquisition proposal by any non-associated director, without reference to shareholders.

However, the Review Panel concluded that this unacceptability was sufficiently addressed by the Undertakings so that no declaration of unacceptable circumstances or orders should be made. In forming this conclusion, the Review Panel took into account the potential unfairness to ESK of requiring repayment of the First Break Fee after it had increased its offer by 1.5 cents per NCI share on the basis that the fee would not be repayable except in accordance with the Undertakings.

Justice Robert Austin, (sitting President), John King and Alice McCleary are the Review Panel.

The Panel will post its reasons for this decision on its website (http://www.takeovers.gov.au) when they have been settled.

George Durbridge
Director, Takeovers Panel
Level 47, Nauru House,
80 Collins Street, Melbourne VIC 3000
Ph: +61 3 9655 3553
George.durbridge@takeovers.gov.au