FEDERAL COURT OF AUSTRALIA Powertel Limited ACN 001 760 103 [2007] FCA 476 Corporations Act 2001 (Cth), s 411 POWERTEL LIMITED ACN 001 760 103, IN THE MATTER OF POWERTEL LIMITED ACN 001 760 103 NSD352 OF 2007 EMMETT J 19 MARCH 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD352 OF 2007 IN THE MATTER OF POWERTEL LIMITED ACN 001 760 103 POWERTEL LIMITED ACN 001 760 103 Plaintiff JUDGE: EMMETT J DATE OF ORDER: 19 MARCH 2007 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth): (a) the Plaintiff convene a meeting of its members (the Scheme Meeting) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between the Plaintiff and its members (the Scheme), in the form set out in Annexure B of the Scheme Booklet which is Exhibit 1A in the proceeding (the Scheme Booklet); (b) the Scheme Meeting be held at 10.00 am on Monday, 23 April 2007 at Museum of Sydney, Theatre, Corner Bridge and Philips Streets, Sydney, NSW; (c) Mr John Conde or, if he is unable to attend, Mr Justus Veeneklaas, is to chair the Scheme Meeting and any adjourned Scheme Meeting; (d) the Scheme Meeting can resolve to adjourn; (e) the Scheme Booklet which constitutes the explanatory statement required by subsection 412(1)(a) of the Corporations Act, is approved; (f) on or before Friday, 23 March 2007, there be despatched to each of the Plaintiff's members by pre-paid post to the address recorded for them in the Plaintiff's register of members, and in the case of the Plaintiff's ordinary shareholders whose registered address is outside Australia, by pre-paid airmail post or despatched by air courier for overseas postage, documents in substantially the form of the Scheme Booklet and including in each case an individualised proxy form substantially in the form of Annexure H to the Scheme Booklet and a reply envelope addressed to the Plaintiff's share registry operator, Computershare Investor Services Pty Limited; (g) the time within which proxy forms for the Scheme Meeting must be received by Computershare Investor Services Pty Limited (i) if delivered or sent by pre-paid post, at Level 5, 115 Grenfell Street, Adelaide SA 5000; or (ii) if sent by pre-paid post, at GPO Box 1903, Adelaide SA 5000; or (iii) if sent by facsimile, at facsimile number 08 8236 2305 is 10:30 am Sydney time (10.00 am Adelaide time) on Saturday, 21 April 2007; (h) subject to these orders, the Scheme Meeting be convened and conducted as far as is practicable in accordance with: (i) the provisions of Part 2G.2 of the Corporations Act that apply in relation to a meeting of the members of the Plaintiff; and (ii) the provisions of the Plaintiff's Constitution that apply in relation to a meeting of the members of the Plaintiff that are not inconsistent with Part 2G.2 of the Corporations Act; (i) other than Regulation 5.6.13 of the Corporations Regulations, Rule 2.15 of the Federal Court (Corporations) Rules shall not apply to the Scheme Meeting. 2. The proceedings be stood over until [9.30 am] on Monday, 30 April 2007 for the hearing of any application to approve the Scheme. 3. The application under subsection 411(4) of the Corporations Act for an order approving the Scheme be advertised once in The Australian newspaper, in the form or to the effect of the annexure hereto marked "A", such advertisement to be published on or before Tuesday 24 April 2007. 4. The Plaintiff has liberty to apply. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD352 OF 2007 IN THE MATTER OF POWERTEL LIMITED ACN 001 760 103 POWERTEL LIMITED ACN 001 760 103 Applicant JUDGE: EMMETT J DATE: 19 MARCH 2007 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Powertel Limited (the Company) has applied to Court for orders under s 411 of the Corporations Act 2001 (Cth) (the Act). The Company asks the Court to convene a meeting of its members for the purpose of considering, and if thought fit, agreeing to a scheme of arrangement proposed to be made between the Company and its members. If approved and implemented, the scheme will result in all of the shares in the Company being vested in Telecom Enterprises Australia Pty Limited, or its nominee (Telecom). The holders of shares in the Company will receive $2.30 in cash per share. The result is that the Company will become a wholly owned subsidiary of Telecom. 2 The Company was established in August 1998 and claims to be one of the largest facilities based providers of telecommunications services to the corporate and wholesale markets in Australia. It operates an established national voice and data network carried over a purpose-built, fibre-optic backbone with a focus on the provision of data, voice and internet solutions to the Australian corporate and wholesale markets. The Company offers a suite of terrestrial based telecommunications products to its customers. 3 The acquisition of the Company by Telecom is said to represent a meaningful step towards the consolidation of the Australian telecommunications market. The Company would be able to leverage its substantial nationwide network and experience as a wholesale provider to deliver services to the Telecom customer base. The benefits of improved access economics and network scale will provide a stronger platform for competition in the corporate and wholesale markets. Those advantages, of course, would not pass to the shareholders of the Company. 4 A scheme booklet will be provided to the members of the Company by way of informing them of the proposal and the effect of their approving the proposed scheme. The proposed booklet contains information concerning Telecom as well as the Company itself. The booklet also describes a proposed related party transaction. While the transaction is not in any way interdependent with the proposed scheme, it is proposed to ask the approval of shareholders to the transaction at the same time as they are asked to approve the scheme. 5 In May 2005, under the terms of an executive long term incentive plan, Mr Paul Broad, who is the Company's managing director, acquired nearly 3 million shares in the Company at a price of $1.11 per share. Under the terms of the plan, the acquisition was funded by a loan from the Company to Mr Broad. The Company's directors propose to pay a bonus of $3,330,000 to Mr Broad. The purpose of the bonus is to provide Mr Broad with funds which, after tax, will allow him to repay a portion of the outstanding loan on the shares acquired by him pursuant to the plan. The proposed scheme booklet contains the reasons advanced by the board in support of their recommendation of the proposal to members. 6 The proposed scheme booklet contains a copy of a report commissioned by the directors of the Company from Grant Samuel and Associates Pty Limited, setting out whether the proposal from Telecom is in the best interests of the Company's shareholders. Grant Samuel has valued the Company in the range of $2.07 to $2.41 per share. The proposal from Telecom of $2.30 per share falls within that range. Grant Samuel, therefore, expressed the opinion that it is fair and reasonable and in the best interests of the Company's shareholders. 7 Grant Samuel gave detailed reasons explaining the evaluation and the methodology that they have adopted. In a letter to the directors summarising their opinion, they observed that the Company is facing a challenging operating environment, characterised by a number of things, as follows: · First, increasing competition, commoditisation of mainstream voice and data services and reducing margins across most product segments. · Secondly, regulatory and pricing uncertainty regarding access to certain key infrastructure that is owned by Telstra. · Thirdly, an expectation that Telstra would begin to compete more aggressively in areas that may impact the Company's business. 8 Grant Samuel noted that the Company has held discussions with other potential acquirers and although the Company has agreed to certain exclusivity and to break fee provisions under the proposal from Telecom, there remains some possibility of a superior offer from a third party. However, in the absence of a superior offer, the Company's shareholders would be better off voting in favour of the proposed scheme. 9 Grant Samuel have valued the equity in the Company in the range of $288.7 million to $335.6 million. The valuation represents the estimated full underlying value of the Company, assuming 100% of the Company was available to be acquired and includes a premium for control. It exceeds the price that Grant Samuel would expect the Company's shares to trade on the Australian Securities Exchange in the absence of the proposal from Telecom or speculation regarding some other corporate transaction. 10 In the absence of a takeover offer, Grant Samuel considered that the Company's shares could be expected to trade at prices below $2.30. While a superior offer from another party is possible, it is relatively unlikely. Grant Samuel expressed their reasons for that conclusion. Their ultimate conclusion is that in the absence of a superior offer the Company's shareholders will be better off voting in favour of the scheme. 11 I have had regard to the affidavit of Mr Paul Broad sworn 8 March 2007, formally proving the existence of the Company and its status. Mr John Conde, or failing him, Mr Justus Veeneklaas have consented to act as chairman of the scheme meeting. I have considered the affidavits of Simon Edward McEgan, sworn 15 March 2007 and 19 March 2007, verifying the accuracy of the contents of the scheme booklet from the point of view of the Company. I have also considered the affidavit of David Knight, sworn 16 March 2007, verifying the contents of the scheme booklet insofar as it relates to Telecom. Ms Caleena Gai Stilwell of Grant Samuel has sworn that the opinions expressed in the report are opinions held by the authors of the report. 12 The effect of the proposed scheme is that the consideration to be paid by Telecom will be provided to the Company in exchange for a transfer of all of the shares in the capital of the Company on behalf of shareholders. In all of the circumstances I am satisfied that the proposed scheme is one which the Court is likely to approve, if it receives the agreement of the requisite number of members of the Company. Accordingly, I propose to make orders in the terms sought by the Company. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 2 April 2007 Counsel for the Plaintiff: I M Jackman SC Solicitor for the Plaintiff: Baker & McKenzie Counsel for Telecom Enterprises Australia Pty Limited: M J Leeming SC Solicitor for Telecom Enterprises Australia Pty Limited: Freehills Date of Hearing: 19 March 2007 Date of Judgment: 19 March 2007