THE corporate regulator has forced Seven Network to make significant changes to documents it will send to shareholders about the proposed merger with his earth-moving business WesTrac.
The move comes amid concerns the information Seven wants to send does not tell shareholders everything they need to know.
Documents tabled in the Federal Court last week during Seven's attempts to convene a shareholder meeting to approve the merger contain nearly 100 pages of correspondence between lawyers for ASIC and Seven in which the corporate regulator chastises parts of Seven's draft scheme book. Chief among the concerns raised are:
■ Insufficient and unclear disclosure that the transaction involves a related party.
■ Details that the combined business will cost $5 million more each year to run.
■ Not emphasising the likelihood brokers could apply a discount of up to 35 per cent to the merged business's share price because it is a holding company.
■ Valuation ranges used by an independent expert being too broad.
■ Statements about WesTrac Group not being clearly substantiated.
■ The prominence and certainty of statements about a potential positive re-rating of Seven's assets and investments not appearing to be warranted.
Justice Peter Jacobson received a series of documents relating to the proposal on Thursday and more on Friday morning, before a court hearing that day where Seven sought approval to hold a shareholder meeting to approve the plan.
During the hearing, Tom Bathurst, QC, for Seven, submitted correspondence between ASIC and Seven to support his argument that the judge did not need to be concerned about the proposals because the corporate regulator had done its job and checked them out.
While ASIC was not represented in court on Friday, Justice Jacobson expressed reservations about aspects of the related-party proposal. Noting that independent directors of Seven, headed by Peter Ritchie, had recommended voting in favour, Justice Jacobson delayed approving Seven's application for an order convening a shareholder meeting ''in light of what I might call the overlapping interests''.
Today, Justice Jacobson will tell a court hearing if he intends to appoint his own legal adviser on the matter or grant orders convening the shareholder meeting.
Seven Network chairman Kerry Stokes announced plans last month to merge his television and earth moving interests. Companies associated with Mr Stokes own 48 per cent of Seven Network shares and all of WesTrac.
Mr Stokes would control 68 per cent of the merged company, Seven Group Holdings, which will use $600 million in cash from Seven Network to pay down WesTrac debt.
The court documents show ASIC highlighted concerns it had with Seven's scheme documents. ''Has any consideration been given to the impact of bringing two completely unrelated businesses together as it appears to us that … this could have a downwards impact on the trading price of shares,'' ASIC wrote.
The independent expert settled on a figure of 12.5 per cent while acknowledging the figure could be as high as 35 per cent.
ASIC said some information could be misleading.
''In particular the statements concerning dividends have the potential to mislead,'' ASIC wrote. ''Seven has in recent years paid a dividend of 34¢. An increase of 2¢ is not a substantial change. Care should be taken not to overstate this potential benefit.''
Seven disputed some of ASIC's comments, including on the dividend, saying Seven is ''not an operating company'', meaning investors do not view dividends on a yield basis.
ASIC questioned the independent expert Deloitte's discussion about applying a control premium to Seven.
ASIC also criticised parts of Deloitte's independent expert analysis, including failure to emphasise that ''additional costs of $5 million per annum are expected to arise out of operating the merged group''. ''This should be included by the expert as a possible disadvantage of the proposed transaction,'' ASIC said.
After Seven included a new section, ASIC asked for more detail, suggesting the wording be changed ''to ensure that shareholders appreciate that they cannot really place any reliance on these savings''.
ASIC called on Seven to clarify what it would do with money on Seven's balance sheet.
