Takeovers Panel issues updated guidance note on Independent Advisers

The Takeovers Panel (Panel) has updated its Guidance Note on Independent Advisers (Guidance Note): Independent Advisers (takeovers.govt.nz)

The Guidance Note sets out information for those who are looking at acting as independent advisers to prepare a report under the Takeovers Code, a class exemption or an individual exemption. The Guidance Note refers to the role of independent advisers and the different types of reports that may be required in certain Code regulated transactions.

Appendix A to the Guidance Note, which sets out the Panel’s policy on the approval of independent advisers, was updated on 11 March 2021 to provide further guidance to independent advisers on when they may become conflicted and lose their independence, including during the course of their engagement. We summarise the updates below.

Conflicts of interest

The requirement for an adviser to remain independent is ongoing, and it is the adviser’s responsibility to ensure that it remains independent during a transaction.

The Panel has noted that advisers should not commence relationships during a transaction which could compromise their independence. They should prepare and give advice in a manner such that they avoid becoming advisers to the Code company’s board (as opposed to its shareholders).

If the adviser fails to meet the Panel’s conditions of approval (which reflect the above principles of independence), a new adviser may need to be appointed.

Early appointment

In relation to advisers being appointed before the terms of a transaction are set or agreed, the Panel have noted that:

  • the key issue is how the engagement between the adviser and the Code company is managed;
  • as a general rule, the earlier an adviser is appointed, the greater the risk of independence issues arising; and
  • they are unlikely to approve an appointment which is proposed before sufficiently clear transaction parameters are agreed.

Manner of engagement between adviser and Code company

An adviser’s independence is unlikely to be compromised where they communicate with the Code company before and during the preparation of the report to obtain or check information, discuss progress, and ask questions for their own analysis.  However, independence may be compromised if the adviser provides information to the Code company that risks the adviser becoming, in effect, an adviser to the Board.

To minimise the risk of compromising their independence, advisers should consider:

  • providing the Code company with the methodology used in the report rather than the valuation range or analysis. While providing a valuation range prior to the final transaction terms being agreed will not automatically compromise the adviser’s independence, it does risk their independence being compromised.  Advisers should only provide the valuation range when they are confident that their independence will not be compromised given the status of negotiations;
  • providing drafts of less analytical sections of the report earlier (e.g. company and industry profiles) and more analytical sections at a later stage; and
  • only amending its analysis if persuaded that there was an error of fact.

Disclosure of changes to reports

Advisers should disclose to the Panel any change to the report made after a response by the Code company’s board or any third party, or after the report has been presented as final, which results in a change to the valuation range or analysis of the transaction or materially affects the adviser’s opinion, analysis or conclusions.  The disclosure should include an explanation of the change, the reasons why the adviser considered the change appropriate and the significance of the change to the adviser’s opinion.

Our view

The updates to the Guidance Note are useful for current and future independent advisers, particularly in relation to their conduct during an engagement. The Panel makes it clear that it is the adviser’s responsibility to ensure independence, and the updates provide useful guidance on when issues may arise and suggestions on ways to minimise this risk.

If you have any questions in relation to this update or the Takeovers Code, or general queries on capital markets matters, please contact one of our experts.

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