RE SHAW BROTHERS (HONG KONG) LTD

HCMP 67/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 67 OF 2009

----------------------

----------------------

-------------------------------------------------------------------------

REASONS   FOR   JUDGMENT

-----------------------------------------------------------------------

1.  This is a petition brought by Shaw Brothers (Hong Kong) Limited (“the Company”) under section 166 of the Companies Ordinance, Cap. 32.  The Company seeks sanction of a scheme of arrangement proposed to be made between it and such holders of its shares (“the Minority Shareholders”), other than those shareholders whose holdings are beneficially owned by Shaw Holdings Inc (“the Offeror”), and parties acting in concert with it, as defined in the Code on Takeovers and Mergers (“the Code”).  The Offeror is wholly owned by The Sir Run Run Shaw Charitable Trust, and Sir Run Run Shaw, a director of the Company, exerts 100% control over the Offeror through the Trust.

2.  The Company was incorporated in 1958.  Its issued shares have been listed on The Stock Exchange of Hong Kong Limited or its predecessor since November 1971.  If the scheme is sanctioned by the court, it is intended that the listing of the shares will be withdrawn from the Stock Exchange.

3.  The business of the Company is investment holding and investments in the media and entertainment industries.  Its operating subsidiaries are among Hong Kong’s best-known media entertainment companies.

4.  The present authorised capital of the Company is HK$150 million divided into 600 million shares of HK$0.25 each, of which 398,390,400 have been issued and are fully paid or credited as fully paid.

5.  The Offeror and the parties acting in concert with it are interested in 298,484,872 shares in aggregate, representing approximately 74.92% of the issued shares.  The Minority Shareholders are interested in 99,905,528 shares in aggregate, representing approximately 25.08% of the issued shares.

6.  On 18 December 2008, the Offeror requested the board of directors of the Company to put forward a proposal to the Minority Shareholders regarding a proposed privatisation of the Company by way of the scheme, under which the shares held by the Minority Shareholders will be cancelled, and the credit arising from that reduction of capital will be applied to pay in full new shares to be issued to the Offeror in the same amount as the number of shares cancelled.

7.  The primary object of the scheme is that all of the shares held by the Minority Shareholders will be cancelled in consideration of the payment by the Offeror of HK$13.35 per share cancelled and that the Company will become a wholly-owned subsidiary of the Offeror and the parties acting in concert with it.  The scheme involves:

(1)  the reduction of the authorised share capital and the issued share capital of the Company from HK$150 million to HK$125,023,618 and from HK$99,597,600 to HK$74,621,218 respectively by cancelling and extinguishing the 99,905,528 issued shares which are held by the Minority Shareholders at the record time;

(2)  the restoration of the authorised share capital to its former amount of HK$150 million by the creation of 99,905,528 new shares, being equal to the number of the shares cancelled;

(3)  the allotment and issue by the Company to the Offeror of the 99,905,528 new shares so created, credited as fully paid by applying the credit which will arise in the Company’s books of account as a result of such reduction of capital in paying up in full at par such new shares; and

(4)  the payment by the Offeror to each of the holders of the cancelled shares of the sum of HK$13.35 in respect of each such share formerly held by them.

8.  On 29 January 2009, leave was given to the Company to convene a meeting of the Minority Shareholders for the purpose of considering and, if thought fit, approving the scheme.  Directions were given for the advertisement of the notice convening the meeting and for the service on the Minority Shareholders of the composite scheme document with an explanatory memorandum as required by section 166A.  These directions have been complied with.

9.  The court meeting was duly convened on 27 February 2009.  The resolution submitted was that the scheme be approved without modification.  237 Minority Shareholders attended in person or by proxy, holding a total of 69,135,429 shares.  231 voted in favour of the resolution, holding an aggregate of 65,746,029 shares.  7 voted against, they held a total of 3,389,400 shares.  HKSCC Nominees Limited, being the nominee for and on behalf of different ultimate beneficial Minority Shareholders, voted both for and against the scheme.  The votes in favour represented 95% of the shares and 97.46% of the members present and voting in person or by proxy.

10.  Thus, the required majority under section 166(2), being a majority in number representing three-fourths in value of the members present and voting in person or by proxy, approved the scheme.  The requirement under Rule 2.10 of the Code is also satisfied, in that the scheme was approved by at least 75% of the votes attached to the disinterested shares and the number of votes cast against the resolution to approve the scheme was not more than 10% of the votes attaching to all of the disinterested shares.

11.  Immediately after the court meeting, an extraordinary general meeting was held in which it was resolved to approve the reduction of capital forming part of the scheme.  Directions were given on 10 March 2009 to dispense with the settlement of a list of creditors, as the proposed reduction does not involve returning capital to members or cancelling shares that are not fully paid up.  Directions given for the advertisement of a notice of the presentation of the petition have been complied with.

12.  The purpose of the scheme, namely, the acquisition of the Company, has long been recognized as a permissible and appropriate purpose of a scheme of arrangement.

13.  The class of members in the scheme has been properly constituted.  The rights of all Minority Shareholders will be affected in exactly the same way and, therefore, they may all vote as one class.

14.  Information about the Company and the scheme has been provided to the Minority Shareholders in the explanatory statement.  They have also been provided with the recommendations of the independent board committee and the advice of the independent financial adviser.  I am satisfied that the Minority Shareholders have been given sufficient information to make an informed decision.

15.  The trading volume of the shares on the Stock Exchange in recent years has been generally low.  The independent financial adviser to the independent board committee has advised that given the relatively low degree of liquidity of the shares traded on the Stock Exchange and the currently limited opportunity for the Minority Shareholders to divest their investment in the Company, the proposal provides an opportunity for them to realise their shareholdings in return for cash, during current poor market conditions, and at a significant premium to the market price prevailing on the last trading date.

16.  The function of the court is not to decide how it would have voted on the scheme, but to consider whether an intelligent and honest member could reasonably approve it.  I am satisfied that the scheme is such that an intelligent and honest Minority Shareholder could reasonably approve.

17.  The Offeror has given the usual undertaking to the court to be bound by the scheme of arrangement sanctioned by the court and to execute all documents and do all such things as may be necessary or desirable to give effect to the scheme.

18.  The scheme involves a reduction of share capital for which confirmation of the court is sought under section 59 of Cap. 32.  The established principles to be applied in determining whether to confirm a reduction of capital are satisfied in this instance.  The shareholders are treated equitably, the proposals have been properly explained, the reduction is for a discernible purpose being an integral part of the scheme, and as the issue of new shares immediately restores the paid-up share capital to its former amount, there would be no prejudice to the creditors of the Company.

19.  For the above reasons, I have sanctioned the scheme and confirmed the proposed reduction of share capital.