Updating the Panel’s Process for the Approval of Independent Advisers

Published 1 June 2012

Introduction

The Panel has recently had feedback from the market that has made it apparent that the Panel’s expectations and processes for the approval of independent advisers are not widely known.

The Panel takes its responsibilities for approving the appointment of independent advisers seriously. The Panel follows a robust process when it approves independent advisers to act under the Code. This process is in place so that the Panel, and shareholders who will rely on the information contained in an independent adviser’s report, can be satisfied that an adviser is appropriately qualified, experienced and independent in relation to a specific transaction.

In order to improve the market’s confidence in the independence of Panel-approved independent advisers, this article describes the Panel’s adviser approval process.

The Code and the role of independent advisers

An independent adviser means “an adviser whom the Panel considers is independent and who is approved by the Panel for the purposes of” the Code (rule 3(1) of the Code).

Independent advisers’ reports play an important role in the scheme of the Code and market feedback has confirmed this. Reports from independent advisers are required in a number of circumstances: 

(a) Rules 15 and 16 require a report on the merits of a transaction where a person seeks to acquire or have allotted to it voting securities in a Code company, with shareholder approval;

(b) Rule 21 requires the directors of a target company to obtain a report from an independent adviser on the merits of a takeover offer;

(c) Rule 22 requires the offeror to obtain a report from an independent adviser where a takeover offer is made for different classes of securities, certifying that the offer is fair and reasonable as between the classes;

(d) Rule 57(1) requires an independent adviser to certify, in some circumstances, that the cash sum proposed as consideration for a compulsory acquisition of equity securities under the Code is fair and reasonable.

The Panel’s policy for the approval of independent advisers

The Panel considers each application for approval on a case by case basis so that the Panel can be satisfied on each occasion that the adviser is appropriately qualified, experienced and independent in relation to a specific transaction.

The Panel does not have a list of “pre-approved advisers”, rather the Panel requires and considers a separate application from a proposed independent adviser for every report required under the Code.

As set out in the Panel’s Policy on the Approval of Independent Advisers, which can be found on the website, an application to prepare an independent adviser’s report under the Code must include specific information. This information includes:

(a) Background details of the transaction;

(b) Details of the applicant adviser, including the applicant adviser’s qualifications and expertise; and

(c) Confirmation that the applicant adviser is independent in relation to the transaction.

Applicant’s qualifications and expertise

The Panel requires an application to contain details of the applicant adviser’s qualifications and expertise. The application must include:

(a) A statement of the applicant’s qualifications and expertise in the form the applicant expects it to appear in its report, together with the names and curricula vitae of the individuals who will be involved in preparing the report; and

(b) Evidence of previous relevant experience demonstrating the applicant’s suitability for approval.

If the applicant is a sole practitioner the Panel may require confirmation from the applicant that, if the applicant is approved, someone of appropriate standing would undertake a peer review of the report

The Panel is keen to broaden the pool of advisers who prepare Code reports. If the Panel is unfamiliar with the applicant adviser’s work, the Panel may request that the applicant submit examples of previous work undertaken as evidence of the applicant’s expertise.

Independence

The Panel requires applicant advisers to provide the following information:

(a) A statement that the applicant has no conflict of interest that could affect the applicant’s ability to provide an unbiased report. The Panel will not accept any qualification to this statement;

(b) Disclosure of all past and present relationships (whether professional or otherwise) between the applicant and the persons instructing the applicant or any other party to the transaction (including the directors and shareholders of any such parties). This disclosure should give the nature, extent and duration of the relationship. For professional relationships, the fees earned, the timeframe of the assignments and whether there has been any past, or any present, involvement with any of the parties should also be disclosed;

(c) Disclosure of any other advisory activities which the applicant is, or will be, undertaking in relation to the transaction, including details of the basis of remuneration for such activity;

(d) Disclosure of any direct or indirect pecuniary or other interest, including any success or contingency fee or remuneration, other than the applicant’s fee for providing the report;

(e) Disclosure of any prior involvement in the transaction (particularly in the formulation of it); and

(f) Whether the independent adviser is preparing an appraisal report under the NZX Listing Rules.

A prior or existing relationship between the adviser and a relevant entity will not automatically disqualify the adviser from being approved; the Panel will consider the nature and extent of any prior or existing relationships when deciding whether an approval will be given.

The following types of relationship are likely to lead the Panel to conclude that the proposed adviser is not independent:

(a) If the proposed adviser has been involved in giving strategic advice on the transaction to any party to the transaction;

(b) If the proposed adviser is likely to financially benefit from the success or failure of the transaction;

(c) If the proposed adviser has an ongoing advisory role or is the current auditor for any party to the transaction;

(d) If the proposed adviser has an interest in any party to the transaction.

Another issue of independence which arises from time to time concerns requests to approve the same adviser for successive transactions involving the same parties.

The Panel takes its responsibilities for approving the appointment of independent advisers very seriously.  Each application to prepare an independent adviser’s report under the Code is considered separately and on a case-by-case basis.

If an adviser wishes to be approved to prepare a report for a successive transaction, factors the Panel is likely to consider could include:

(a) The proximity of the preparation of the two reports;

(b) Whether this is likely to be the last independent adviser’s report to be provided to shareholders before compulsory acquisition is initiated;

(c) Whether the business, circumstances or prospects of the target company have changed between the two reports;

(d) 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 first report; and

(e) The nature of the transactions.

New requirement for a “Statement of Independence”

With the aim of reminding shareholders of the independence of the adviser, the Panel now requires an independent adviser to display a “Statement of Independence” on the front cover of their independent adviser’s report.

The statement looks like this:

STATEMENT OF INDEPENDENCE

[Name of adviser] confirms that it:

  • has no conflict of interest that could affect its ability to provide an unbiased report; and
  • has no direct or indirect pecuniary or other interest in the proposed transaction considered in this report, including any success or contingency fee or remuneration, other than to receive the cash fee for providing this report.

[Name of adviser] has satisfied the Takeovers Panel, on the basis of the material provided to the Panel, that it is independent under the Takeovers Code for the purposes of preparing this report.

Conclusion

The Panel takes its responsibilities for approving the appointment of independent advisers very seriously. Each application to prepare an independent adviser’s report under the Code is considered separately and on a case-by-case basis.

If you have any questions on the Panel’s approval process, you can find plenty of information on our website. Alternatively, you can contact the Panel executive.