Takeovers Panel issues updated guidance notes on Target Company Statements and Independent Advisers

The Takeovers Panel has published two updated Guidance Notes on the Panel’s website: Guidance Note on Target Company Statements and Guidance Note on Independent Advisers and the Takeovers Code.

The updates

Prospective Financial Information – Target Company Statements and Independent Advisers

The key update to both Guidance Notes relates to setting out the Panel’s expectations in relation to the disclosure of principal assumptions underlying financial forecasts.

Independent adviser reports will ordinarily set out prospective financial information, which comprise forecasts that are based on information provided by the company appointing the independent adviser.

The Code requires an independent adviser’s report to state the principal assumptions on which any prospective financial information is based. The Panel expects that the assumptions will directly accompany the relevant prospective financial information in the document and be set out in a way that is helpful and relevant for shareholders reading the report. The Panel believes that providing shareholders with these assumptions assists them to make their own informed judgment on the quality and reliability of the information.

The Panel suggests assumptions can range from reasonably certain to very uncertain and therefore it is helpful to address, among other things:

  1. the degree of certainty/risk associated with particular assumptions and the key factors that could cause them to be incorrect;
  2. the extent to which assumptions relate to matters within or outside the control of the entity; and
  3. source material that has been used in deriving assumptions (e.g. past performance, third party reports or research and other market data).

The Panel states that in determining what information to provide about the sensitivities of prospective financial information, the key question is whether it could reasonably be expected to be material to the making of a decision by the offerees to accept or reject the offer.

Conflicts of interest – Independent Advisers

The Panel has always considered the nature and extent of any prior or existing relationship between the proposed independent adviser and the parties to the relevant transaction to determine whether the proposed adviser is independent.

The Panel will consider where the proposed adviser has been involved in giving strategic advice on the relevant transaction, is likely to financially benefit from the transaction or has an interest in any party to the relevant transaction.

The Panel has stated that being the current auditor for any party to the relevant transaction is not in itself a barrier to the proposed adviser being independent, rather the proposed adviser will not be independent if the proposed advisor has an ongoing corporate advisory role for any party to the relevant transaction.

Successive transactions – Independent Advisers

In some cases, a Code company that is subject to successive Code-regulated transactions (for example, follow-on takeovers) may wish to appoint the same adviser from an earlier transaction to prepare the new report. The Panel has made it clear that the primary question they will consider in determining whether the same adviser can prepare the new report is whether the shareholders are likely to benefit from having an independent adviser’s report prepared by a different advisory firm from that which prepared the earlier report(s).

Our view

The updates to the Guidance Notes are a useful insight as to the Panel’s expectations for prospective financial information. The Panel has made it clear that this information forms an important part of shareholders’ decisions. This will hopefully lead to more useful and clear information being presented to shareholders, allowing shareholders to make more informed decisions.

The removal of being the current auditor of the Code Company as a barrier to being an independent adviser is a welcome change which reflects the commercial reality of New Zealand audit and commercial advisory firms.

While Silvana Schenone, one of our partners, is a member of the Takeovers Panel, we objectively see the updates to the Guidance Notes will be beneficial to shareholders, proposed independent advisers and parties to future Code-regulated transactions alike.

If you have any questions in relation to the updates to the Guidance Notes or any general Takeovers Code issues or queries, please contact one of our experts.

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