Independent Advisers

Published 1 September 2007

The Takeovers Panel has published a third edition of it Guidance Note about the Role of Independent Advisers for the purposes of the Takeovers Code. This edition of CodeWord explains the Panel’s thinking behind the new edition.

Key points

  • The Panel suggests that it is not appropriate for takeover offers or Code transactions to be described by the independent adviser as “fair” or “not fair”. Instead the adviser’s report should set out all the merits of the particular offer or transaction.
  • Where a subcontractor is required to assist an independent adviser with the preparation of a particular Code report the primary adviser should select that subcontractor (who will form part of the Panel’s approval) who must meet the same standards of competence and independence as the primary adviser.
  • Where an adviser is giving advice in relation to a partial takeover offer, whether for the bidder to reach more or less than 50% of the voting rights of the Code company, the Panel suggests that the adviser should pay careful attention to all the merits of the offer, including the impact on immediate and future potential changes of control.
  • The Panel’s view of the independence of advisers when a bidder makes two takeover offers for the same company in quick succession.
  • The Panel’s Guidance Note about the Role of Independent Advisers has been updated and a new version is now available on the Panel’s website.

Introduction

One of the key features of the Code is the importance placed on the role of independent advisers in relation to most Code transactions, that is takeovers, acquisitions, allotments, and buybacks. Generally where a shareholder is to increase its control percentage in a Code company above the 20% level an independent adviser will be required to give a report on the “merits” of the takeover offer or Code transaction. The report will be addressed to the shareholders who are either receiving the takeover offer or who have the right to vote on a shareholder resolution where another party is seeking to increase its level of control.

The Panel approves each appointment of an independent adviser for the Purposes of a Code transaction. In the first six years since the Code came into force the Panel has considered some 260 applications for approval of advisers, 231 of which were approved. The Panel pays careful attention to both the competence and independence of advisers when their proposed appointment is put forward for approval. The Panel also considers the competence and independence of any subcontractors who will be assisting the primary adviser.

The Panel reviews the content of reports produced by independent advisers. For some time now the Panel executive has been reviewing draft reports before they are sent to shareholders. The executive often proffers suggestions and comments to the adviser on ways in which the report can be improved.

Such comments may relate to the description of Code issues or the comprehensiveness of the discussion on the merits of the proposed takeover or transaction. They will not relate to the adviser’s methodology or valuation analysis.

The Panel’s aim is to see the continual improvement in the standard of reporting by independent advisers while at the same time broadening the number of advisory firms able to undertake Code assignments.

Based on its early experiences with the review of draft and completed independent adviser reports the Panel decided that it should give some guidance to the independent advisers as to the scope and content of reports required for each type of transaction under the Code. The Panel published the first edition of its Guidance Note about the Role of Independent Advisers in March 2003. This was followed by the publication of a second edition in July 2003 incorporating helpful comments received from the market.

In general, the feedback on the Panel’s guidance note has been positive. Some advisers found the guidance particularly helpful as they were able to point out to prospective clients the scope of reports required under the Code.

With the benefit of more recent reports and feedback from the advisers themselves the Panel decided to further revise its guidance note. The third edition has been published and is available on the Panel’s website. The new edition incorporates additional comment on four particular areas:

  • an excessive emphasis by independent advisers on the “fairness” of transactions;
  • the appropriate relationship between an independent adviser and any subcontractor required to assist the independent adviser in undertaking adviser assignments under the Code;
  • the need for clarification in relation to the way independent advisers comment on the merits of partial offers;
  • the question of independence of advisers when a bidder makes successive offers for the same target company.

These issues are discussed in turn.