The Supreme Court has sided with TV stations Seven and Nine and ordered that Ten must sell to Seven and Nine its one third stake in TX Australia, a joint venture company established in 1999 to hold transmission and tower facilities for the three stations. The kicker is, while Ten contributed approximately $2 million (in today's terms) to TXA's set-up, and arguably its stake is now worth $42 million, the Court ruled that Seven and Nine only have to pay $1. Understandably, Ten is a little pissed about this.
So, how did the Court decide this? Well, Seven, Nine and Ten signed a shareholders' agreement for TXA which provided that on the happening of certain "default events" a defaulting shareholder (in this case Ten) can be forced to sell its shares to the other shareholders. This is a common clause in most shareholders' agreements and the key points are:
- what constitutes a "default" to trigger the buyout right (usually breaches of the agreement or insolvency); and
- at what price the shares will be transferred (typically current market value, as determined by an independent expert).
The relevant "default" for Ten was that, in 2017, it was tipped into administration. Seven and Nine jumped to buy its stake in TXA, and TXA's auditor valued it at $1.
The arguments raised by Ten to support its challenge to the $1 outcome were in some areas quite tortured, but for legal nerds like us resulted in quite a lovely judgment to read, including a very kind description of bad drafting as "an infelicity of language". But in particular, some reminders it gives about drafting or agreeing a compulsory transfer provision:
- them's the words: be careful in drafting the default triggers - despite what may seem commercially appropriate in hindsight (back in 1999, nobody was seriously contemplating a network ever going broke), there is no "but we didn't mean it to apply in this case";
- them's the breaks: if the parties agree that a third party expert will determine the price (in this case, TXA's auditors), they better be ready to live with what the expert decides. In this case, because the shareholders' agreement didn't say much about what process the expert should undertake in determining the price (it literally just said "price determined by the auditors"), it was up to the expert to decide on the methodology (PWC chose market value, not a fair and reasonable price as Ten would have liked).
Ten has vowed to appeal the decision. We think they'd be better off saving their lucky dollar.
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