NR 12/1999
18 February 1999
The ABA has considered an application by Mr Kerry Packer, Mr James Packer and the Consolidated Press Holdings group of companies (CPH) (collectively, ‘the Packer Interests’) for approval of temporary breaches of the ownership and control rules which have arisen as a result of the buy back agreement between John Fairfax Holdings Limited (Fairfax) and Brierley Investments Limited (BIL). Section 67 of the Broadcasting Services Act 1992 (the Act) gives the ABA power to approve temporary breaches for a period of six months, one year or two years.
The ABA has decided to allow the Packer Interests six months to rectify the breaches of the cross media rules.
"In considering whether to not to grant approval, the ABA took account of the fact that the breaches were the result of action by persons other than the Packer Interests. The ABA also took account of two undertakings provided to the ABA," said Professor David Flint, ABA Chairman.
One of the undertakings is made by FXF Management Limited (the manager of the FXF Trust), Perpetual Trustee Company Limited (the Trustee of the FXF Trust), FXF Holdings Pty Limited, FXF Investments Pty Limited (FXF Investments) and FXF Finance Pty Limited (together the FXF parties) in favour of the ABA and CPH.
This undertaking provides that FXF Investments will, before the end of the approval period, dispose of sufficient Fairfax shares so that FXF Investments will have 15 per cent or less of the Fairfax shares then on issue. It also provides that during the approval period, FXF Investments will not exercise the right to vote any Fairfax shares it holds in excess of 15 per cent. The undertaking also provides that during the approval period, none of the FXF parties will acquire any further company interests in Fairfax.
The ABA also received a second undertaking from Mr Kerry Packer, Mr James Packer and each of the CPH companies in favour of the ABA. This undertaking provides that Messrs Kerry and James Packer and CPH will do everything that they are capable of doing and which are necessary to remedy the breaches before the end of the approval period. This undertaking also provides that during the approval period they will not acquire any additional company interests in Fairfax.
The cross media rules prohibit Mr Kerry Packer, Mr James Packer and CPH from being in a position to exercise control of Fairfax while they are simultaneously in a position to control the Nine Network licences in Sydney and Melbourne.
Under the Fairfax/BIL buy back agreement, Fairfax will buy back 80,650,000 of its shares. Completion of the buy back agreement will result in a proportionate increase in the percentage shareholding of each remaining Fairfax shareholder.
When the shares are acquired, the FXF Trust’s shareholding in Fairfax will rise from 14.53 per cent to 16.15 per cent and it will be deemed to be in a position to exercise control of Fairfax under the Act.
In the ABA’s view, Mr Kerry Packer, Mr James Packer and the Consolidated Press Holdings group of companies (CPH) are currently in a position to exercise control of the FXF Trust and thus on completion of the buy back agreement, they will go into breach of the Act.
The ABA has granted the applicants the minimum period of six months to remedy the breaches of section 60 and 61 of the Act. The ABA opted for the minimum period to limit the impact of any negative effects of cross-media breaches involving broadcasting and print media services with a high degree of influence in shaping community views in Australia.
The Act allows a person who has been given temporary approval under section 67 to apply for an extension of the approval time period of up to the time period previously granted.
In deciding whether to grant an extension to an applicant, the ABA is to have regard the endeavours that the applicant made in attempting to comply with the notice and the difficulties that the applicant experienced but the ABA must not have regard to any financial disadvantage that compliance with the notice may cause.
BACKGROUNDER
The 80,650,000 Fairfax shares currently held on behalf of BIL constitute 9.9 per cent of the shares currently on issue in Fairfax. A general meeting of Fairfax shareholders on 12 February 1999 approved a resolution on the buy back agreement.
Fairfax and BIL propose to enter into the buy back agreement as soon as practicable. Once the buy back is complete, Fairfax will cancel the shares under section 257H(3) of the Corporations Law. The cancellation of the BIL shares will result in a proportionate increase in the FXF Trust percentage shareholding in Fairfax. As a result of the buy back, company interests in Fairfax held by the FXF Trust and some CPH companies will rise from 14.53 per cent to 16.15 per cent.
If a person has company interests in a company exceeding 15 per cent, the person is deemed to be in a position to exercise control of the company under clause 6 of Schedule 1 of the Act.
Under section 8(2)(a) of the Act a person has a voting interest in a company if the person is in a position to exercise control of votes cast on a poll at a meeting of the company.
In the ABA’s view Mr Kerry Packer, Mr James Packer and CPH’s voting interest in Fairfax will correspond to the percentage of Fairfax shares held by the FXF Trust.
Mr Kerry Packer, Mr James Packer and CPH are also in a position to exercise control of Publishing and Broadcasting Limited and, through a chain of companies, the Nine Network licences TCN in Sydney and GTV in Melbourne.
Section 60 of the Act prohibits a person or company from being in a position to exercise control of a commercial television broadcasting licence and a newspaper that is associated with the licence area of the licence. The Sydney Morning Herald and the Age published by Fairfax are associated with the Sydney and Melbourne commercial television broadcasting licence areas respectively.
Section 67 of the Act provides that a person may, before a transaction takes place or an agreement is entered into that would place a person in breach of a provision of the ownership and control rules, make an application to the ABA for approval of the breach.
If the ABA is satisfied that the transaction would place a person in breach of the ownership and control rules and the person will take action to remedy the breach and the breach is incidental to the objectives of the transaction or agreement, then the ABA may approve the breach and specify a period in which the breach must remedied.
The period of approval must be six months, one year or 2 years.
Under section 68 a person who has been given approval for a breach under section 67 may apply in writing to the ABA for an extension of the period. The ABA is not required to grant an extension, but may do so if, in its opinion, an extension is appropriate in all the circumstances.
The ABA must not grant more than one extension, and the period of any extension must not exceed the period originally specified in the notice.