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Australia: Schemes of Arrangement - How Many Classes of Shareholders Do You Have for Your Scheme Meeting?


22 August 2011

Article by Li-Jean Chew



A scheme of arrangement to acquire shares in a company must be approved by the requisite majorities set out in the Corporations Act 2001 (Cth), at a meeting or meetings of the shareholders or "class" of shareholders of the target.


It is not unusual for a shareholder of a target company to also hold options or convertible securities in the target. In such cases, in order to achieve the benefits of full ownership of the target, the bidder will often propose a separate arrangement with that shareholder to acquire or otherwise deal with their other securities. The issue for consideration by the target company in such a scenario is whether that shareholder, because it will be receiving a benefit that is not provided to the other shareholders, constitutes a separate class for the purposes of voting on the scheme.


The decisions in two recent schemes provide some insight into the court's and ASIC's approaches in relation to this issue.


Cellestis Limited[1]


The proposed scheme was one between Cellestis Limited (Cellestis) and its shareholders, which would result in the acquisition of all the ordinary shares in Cellestis by QIAGEN Australia Holding Pty Limited (QIAGEN Australia).




In addition to the ordinary shares in Cellestis, there were also unlisted employee options on issue. These options (of which there were three tranches, each with a different exercise price) were to be cancelled pursuant to a deed entered into between Cellestis, QIAGEN Australia and each option holder. The consideration payable by Cellestis for the cancellation of these options was derived using the Black-Scholes methodology.


Although it was not proposed that there be separate scheme meetings for the shareholders who were also option holders, Davies J stated that the court should nevertheless consider whether the option holders should be regarded as a separate class for the purposes of voting on the scheme.


The following submissions were accepted by the court in support of the finding that the proposed treatment of the options did not give rise to any class issue:


the scheme related to shares in Cellestis and any shares held by the option holders would participate on the same basis and receive the scheme consideration as shares held by all other Cellestis shareholders who were not option holders;

the cancellation of options was not part of the scheme;

the consideration to be paid for the cancellation of the options was derived using the Black-Scholes valuation methodology which was a commonly used methodology, and the extent of any difference in the consideration to be paid to the option holders and the scheme consideration was a product of the valuation methodology; and

not all of the option holders were shareholders.

Call options


Two directors of Cellestis who collectively held 23.8% of the shares in Cellestis granted QIAGEN Australia, in consideration for $10, a call option over 19.9% of their shares. The call option could only be exercised where:


a competing transaction was announced or received by Cellestis and QIAGEN Australia provided to Cellestis a matching or superior proposal to that competing transaction;

a competing transaction that was superior to the scheme was announced or received by Cellestis and QIAGEN Australia did not provide to Cellestis a matching or superior proposal to that competing transaction and QIAGEN Australia reasonably formed the view that the competing transaction was likely to be successful if the shares the subject of the call option participated; or

during the option period, the directors dealt with any of the call option shares except as contemplated by the call option deeds.

Here, the issue was whether these two directors might constitute a separate class. The court concluded that there was no separate class because of the following:


the event triggering the right to exercise the call options was the emergence of a competing proposal;

the directors would receive the same scheme consideration for their parcel which was the subject of the call options as the other scheme shareholders would receive;

both directors had recommended the scheme to the shareholders and stated their intention to vote their shareholding in favour of the scheme in the absence of a superior proposal;

the call option deeds expressly provided that nothing in the deed restricted the ability of the directors to exercise the votes attaching to the call option shares; and

the directors had another parcel of shares not covered by the call options which would be participating in the scheme.

iSOFT Group Limited[2]


Here, there were two schemes proposed - a share scheme between iSOFT Group Limited (iSOFT) and its shareholders and an option scheme between iSOFT and its optionholders - which if implemented, would result in iSOFT becoming a wholly-owned subsidiary of CSC Computer Sciences Australia Holdings Pty Limited (a wholly-owned subsidiary of the American company, Computer Sciences).


iSOFT initially proposed only one meeting of all of its shareholders to consider the share scheme. Following concerns raised by ASIC, a separate meeting was held for one of iSOFT's substantial shareholders, which was also a convertible noteholder and warrant holder.


Warrants and convertible notes


Oceania Capital Partners Limited, through its subsidiary Oceania Healthcare Technology Investments Pty Limited (OHTI), held approximately 24.57% of the iSOFT shares. OHTI also held all of the warrants and convertible notes issued by iSOFT.


It was proposed that:


all of the warrants held by OHTI be extinguished in consideration for an amount payable to OHTI equivalent to the consideration paid to shareholders under the share scheme less the exercise price for the warrant; and

all of the convertible notes be paid out their full face value of approximately $39.7 million.

As a result of concerns expressed by ASIC and some shareholders, a separate valuation was made of the convertible notes by the independent expert, Lonergan Edwards. Lonergan Edwards' conclusion was that because of the risk of iSOFT not being able to repay the principal amount of the convertible notes, an investor (in a non-change of control scenario) would apply a discount of between 20% to 25% to the face value of the convertible notes when assessing their value. On this basis, Lonergan Edwards concluded that the value of the convertible notes ranged between $18.3 million and $26.7 million (in contrast to the $39.7 million that OHTI would be paid out for them under the proposal). There was therefore a concern that OHTI would be receiving a benefit as holder of the convertible notes that was not being provided to the other shareholders of iSOFT.


In this case, the court did not need to decide whether OHTI constituted a separate class from the other iSOFT shareholders as the directors concluded that it was appropriate that there be separate meetings of OHTI and of the other shareholders. It is worth noting that the court's reasons for judgment stated that this decision of the directors was a result of discussions between iSOFT, ASIC and other shareholders.


The court's reasons also indicated that, in its letter to iSOFT, ASIC noted that the full and early repayment of the convertible notes held by OHTI may amount to a collateral benefit. On the basis that iSOFT proposed to have OHTI vote on the share scheme in a separate class from the other iSOFT shareholders and that the proposed explanatory memorandum adequately disclosed the benefit conferred by the repayment of the convertible notes and the implications for shareholders, ASIC did not propose to oppose the schemes.


Bottom line


The mere fact that a shareholder receives some benefit from the overall proposal that the other shareholders do not receive does not automatically mean that the shareholder constitutes a separate class. However, a close examination of the relevant circumstances will often be required, particularly in light of ASIC's approach in relation to iSOFT. Target boards will also need to consider whether an independent expert should be commissioned to give an opinion as to whether the relevant benefit constitutes a special or net benefit to the shareholder.


Target boards should also bear in mind that even if the court at the first court hearing does not find that a separate meeting is required for the shareholder receiving the collateral benefit, if the scheme is approved only as a result of the votes of this shareholder, the court may take the benefit received by the shareholder into account when it exercises its discretion whether or not to approve the scheme at the second court meeting.


In the case of Cellestis, one of the reasons for the court finding that the two directors did not constitute a separate class was that the call options deeds did not restrict the directors' ability to exercise the votes attaching to their shares the subject of the call option. This raises the question of where the bidder (or its related body corporate) is a target shareholder and therefore can exercise votes at the scheme meeting, whether the bidder (or its related body corporate) constitutes a separate class. In such a situation, provided the bidder (or its related body corporate) will be receiving the same scheme consideration for its shares as the other shareholders, then the bidder (or its related body corporate) is unlikely to constitute a separate class for the purposes of the scheme meeting.


[1] Re Cellestis Limited [2011] VSC 284


[2] iSOFT Group Limited, in the matter of iSOFT Group Limited [2011] FCA 680




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Preliminary report was supposed to be released today. Perhaps this is no longer important, but I have some irrational desire to know just how much we have collectively forsaken based on the patently obvious sales pitch of a couple of founders who decided to cash in and those who bought it hook line and sinker.
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press release


Aug. 29, 2011, 1:41 a.m. EDT



QIAGEN Completes Acquisition of Cellestis Limited

http://i1.marketwatch.com/MW5/content/story/images/PR-Logo-Newswire.gif chainEmbeddedVideos = true;


VENLO, The Netherlands and MELBOURNE, Australia, August 29, 2011 /PRNewswire via COMTEX/ -- QIAGEN N.V. /quotes/zigman/60902/quotes/nls/qgen QGEN +1.41% (prime standard:QIA) today announced that its acquisition of all the ordinary shares in Cellestis Limited ("Cellestis") by a way of a scheme of arrangement ("Scheme") has been implemented.


The closing of the transaction follows the official approval of Cellestis' shareholders and Australian courts. QIAGEN had announced the initial proposal to acquire Cellestis on April 4, 2011. With closing of the transaction Cellestis will become a fully consolidated subsidiary of the QIAGEN group.


"We are pleased to have completed the transaction and will now initiate the integration process", commented Peer M. Schatz, Chief Executive Officer of QIAGEN N.V. "We welcome our new employees to QIAGEN and look forward to further growing the QuantiFERONÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚® technology together to provide greater benefits to patients and healthcare providers, thereby creating significant value for QIAGEN shareholders."


Cellestis has developed and successfully commercialized the QuantiFERONÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚® technology, a proprietary approach for early disease detection not possible with other diagnostic methods. Cellestis' QuantiFERONÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚®-TB Gold (QFT) is a leading test for detection of latent tuberculosis. The QuantiFERONÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚®-CMV test, which is in early stages of commercialization, enables monitoring of disease risk from the life-threatening cytomegalovirus (CMV).* QuantiFERONÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚® is highly complementary to QIAGEN's portfolio of molecular diagnostics and can help drive the use of traditional DNA- and RNA-based molecular diagnostics.


*QuantiFERONÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚®-CMV is IVD CE marked for clinical use in the European Union and is a Research Use Only Product in the United States.




QIAGEN N.V., a Netherlands holding company, is the leading global provider of sample and assay technologies. Sample technologies are used to isolate and process DNA, RNA and proteins from biological samples such as blood or tissue. Assay technologies are used to make such isolated bio-molecules visible. QIAGEN has developed and markets more than 500 sample and assay products as well as automated solutions for such consumables. The company provides its products to molecular diagnostics laboratories, academic researchers, pharmaceutical and biotechnology companies, and applied testing customers for purposes such as forensics, animal or food testing and pharmaceutical process control. QIAGEN's assay technologies include one of the broadest panels of molecular diagnostic tests available worldwide. This panel includes the digene HPV Test, which is regarded as a "gold standard" in testing for high-risk types of human papillomavirus (HPV), the primary cause of cervical cancer, as well as a broad suite of solutions for infectious disease testing and companion diagnostics. QIAGEN employs nearly 3,600 people in over 35 locations worldwide. Further information about QIAGEN can be found at http://www.qiagen.com/ .


Certain of the statements contained in this news release may be considered forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. To the extent that any of the statements contained herein relating to QIAGEN's products, markets, strategy or operating results, including without limitation its expected operating results, are forward-looking, such statements are based on current expectations and assumptions that involve a number of uncertainties and risks. Such uncertainties and risks include, but are not limited to, risks associated with management of growth and international operations (including the effects of currency fluctuations, regulatory processes and dependence on logistics), variability of operating results and allocations between business segments, the commercial development of markets for our products in applied testing, personalized healthcare, clinical research, proteomics, women's health/HPV testing and nucleic acid-based molecular diagnostics; changing relationships with customers, suppliers and strategic partners; competition; rapid or unexpected changes in technologies; fluctuations in demand for QIAGEN's products (including fluctuations due to general economic conditions, the level and timing of customers' funding, budgets and other factors); our ability to obtain regulatory approval of our products; difficulties in successfully adapting QIAGEN's products to integrated solutions and producing such products; the ability of QIAGEN to identify and develop new products and to differentiate and protect our products from competitors' products; market acceptance of QIAGEN's new products and the integration of acquired technologies and businesses. For further information, please refer to the discussions in reports that QIAGEN has filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC).


Contacts: Public Relations: Dr. Thomas Theuringer Director Public Relations +49-2103-29-11826 +1-240-686-7425 e-mail: pr@qiagen.com http://www.twitter.com/qiagen in Australia: Amanda Lee / Andrew Stokes +61-2-8298-6100 e-mail: Amanda.Lee@fd.com / Andrew.Stokes@fd.com Investor Relations: John Gilardi VP Corporate Communications +49-2103-29-11711 Dr. Solveigh Maehler Director Investor Relations +49-2103-29-11710 Albert F. Fleury Investor Relations North America +1-301-944-7028 e-mail: ir@qiagen.com





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Words from the wise, with a very few relevant tweaks by me:


I might value my Cellestis share at $10. If I was offered a price of $3.55 for it last week then the fact that somebody offers me $3.80 this week is not going to make me sell on the basis that the offer is 7% more than last weeks "price". This is all particlularly true if I had no plans to sell the share in the first place.


In our situation it is particularly galling when the Scheme calls for an Independant Expert to decide what is best for us. I have managed my investment in Cellestis for ten years now - I don't need somebody else to tell me that I am to be forced to sell my shares at a particular price.


But, guess what? The Independent Expert, The Cellestis Directors, other shareholders, Qiagen ... nobody ... can tell us to sell our shares at $3.55 if, together, we vote this Scheme down.


Oh yeah, that's right... other shareholders can actually tell me what to sell my shares for without my permission. The money might be in the bank, but I'd just prefer my property back thanks.


Anyone know what's happening with the preliminary results? Smell another rat (jeez a lot of 'em round lately)? I guess it is harder to unscramble the egg if the actual results are a 'touch' better than the estimates given before the vote right?


I hope Qiagen enjoys the profits they make from my property that they took by force without my consent. Obviously I won't.



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30 August 2011

Cellestis Limited


Cellestis Limited (the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“CompanyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ) will be removed from the official list of ASX Limited at

the close of trading today, Tuesday 30 August 2011, at the request of the Company

under listing rule 17.11, following confirmation of the implementation of the scheme of

arrangement by which QIAGEN Australia Holding Pty Ltd is now the sole shareholder in

the Company.

Security Code: CST

James Gerraty

Manager, Listings (Melbourne)


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End of a dream,Australian research and Australian workersselling a value added product on the world stage ,that notonly brings wealthto Australia, but also healps people.Soldout so traders and money managers can make a short term profit. Makes one wish for a windfall tax on unearned income. Thanks for the entertainment and assistance when asked for.
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