FEDERAL COURT OF AUSTRALIA Ventura Investment Management Limited, in the matter of Ventura Investment Management Limited (No 2) [2011] FCA 901 Citation: Ventura Investment Management Limited, in the matter of Ventura Investment Management Limited (No 2) [2011] FCA 901 Parties: VENTURA INVESTMENT MANAGEMENT LIMITED ACN 092 375 258 File number: NSD 796 of 2011 Judge: EMMETT J Date of judgment: 7 July 2011 Legislation: Corporations Act 2001 (Cth) s 411(1) Date of hearing: 7 July 2011 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 7 Counsel for the plaintiff: M Oakes SC Solicitor for the plaintiff: McCullough Robertson IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 796 of 2011 IN THE MATTER OF VENTURA INVESTMENT MANAGEMENT LIMITED ACN 092 375 258 VENTURA INVESTMENT MANAGEMENT LIMITED ACN 092 375 258 JUDGE: EMMETT J DATE OF ORDER: 7 JULY 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The Supplementary Scheme Booklet annexed to the affidavit of Charles Shane O'Reilly sworn and filed on 6 July 2011 be approved for distribution to shareholders of the plaintiff. 2. The proceeding remain stood over to 2.15pm on Monday, 1 August 2011 before Jacobson J for the hearing of any application to approve the scheme of arrangement. 3. There be liberty to restore the proceeding on two days' notice. 4. These orders be entered forthwith. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 796 of 2011 IN THE MATTER OF VENTURA INVESTMENT MANAGEMENT LIMITED ACN 092 375 258 VENTURA INVESTMENT MANAGEMENT LIMITED ACN 092 375 258 JUDGE: EMMETT J DATE: 7 JULY 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 20 June 2011, the Court ordered, pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Corporations Act), that Ventura Investment Management Limited (the Company) convene meetings for the purpose of considering and, if thought fit, agreeing to a proposed scheme of arrangement. The scheme of arrangement is set out in a scheme booklet which was approved by the Court on 20 June 2011 for distribution to members of the Company. 2 The essence of the proposed scheme is that Centrepoint Alliance Limited (Centrepoint) is to acquire approximately 83 per cent of the shares of the Company in consideration for the issue and allotment of shares in Centrepoint. The scheme booklet approved by the Court on 20 June 2011 has been forwarded to shareholders of the Company. Annexure A to the scheme booklet is a report by Investorlink Corporate Limited (Investorlink) to the directors of the Company, indicating its opinion that the proposed scheme is fair and reasonable and in the best interests of the shareholders of the Company. 3 Since the announcement of the scheme and the making of the orders, there has been a significant change in the listed price of shares in Centrepoint, which has given rise to queries concerning the value of the consideration that will be provided to members of the Company if the scheme is approved and becomes effective. The directors of the Company have therefore asked Investorlink to provide a supplementary report indicating whether or not the change in the listed price for shares in Centrepoint affects its original opinion. Investorlink has provided a report of 4 July 2011 on that question, indicating that its recommendation that the scheme is fair and reasonable has not changed. 4 In its supplementary report of 4 July 2011, Investorlink, says that, when determining a fair market value of shares in Centrepoint on the assumption that the scheme is completed, it adopted a "sum of parts" approach. That approach involved, first, the valuation of the combined business segments, based on the capitalisation method outlined and detailed in section 9.2 of the original report, and, secondly, the value of Centrepoint excluding the operations of the Company, based on a net assets approach also outlined in section 9.2 of the original report. 5 Investorlink says, in its report, that neither of those methodologies included the current quoted price when deriving a fair market value. It referred to Regulatory Guide 111 (RG111) issued by the Australian Securities and Investments Commission (the Commission), which says that it is generally appropriate for an independent expert to consider the quoted price for listed securities as one of five methodologies that may be considered when assessing the fair market value of an entity. However, for that methodology to be reliable, there should be what is described as a "deep market" in the entity's shares. Paragraph 69 of RG111 indicates that a deep market should reflect a liquid and active market. Investorlink describes what it considers to be the characteristics representative of a deep market, and says that all of those criteria should be met before it could be said that the market in the shares is deep. It says that, based on the analysis outlined in section 11 of the original report, it does not consider that there is a deep market for shares in Centrepoint. Accordingly, it confirms that the recent decline in the quoted market price, up to the date of the supplementary report, does not change its opinion that the scheme is fair and reasonable. 6 The directors now propose to dispatch to members a supplementary scheme booklet explaining the steps that they have taken, and annexing Investorlink's supplementary report. The supplementary scheme booklet discloses that during recent months there has been a decline in the listed price of shares in Centrepoint. A graph showing movements during the three-month period from 5 April 2001 to close of trade on 4 July 2011 is set out in the supplementary scheme booklet. The booklet states the highest recorded price during that period was $1.19, while the lowest recorded price was $0.86. The last recorded sale price, immediately prior to the announcement of the scheme on 8 April 2011, was $1.15. 7 A copy of the proposed supplementary scheme booklet has been provided to the Commission, which has indicated that it does not propose to take a different position from that which it had previously indicated in relation to the proposed convening of the meeting of members. The Company has now applied for an order that the supplementary scheme booklet be approved for distribution to shareholders of the Company. In all of the circumstances, I consider that it is appropriate to make such an order. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 8 August 2011