The Panel does not wish to prescribe the meaning of “merits” in relation to any particular transaction and nor does it wish to express a view of various valuation methodologies. However, in its Guidance Note, the Panel makes suggestions in relation to most of the types of report that an adviser may be called on to complete.

Philosophically, the Code is concerned with the effect of changes in control between recognised points – 20% to 50%, 50% to 90%, and above 90%. The Code provides rights for shareholders at each stage.

The merits of incremental changes in voting control are often the primary focus of an independent adviser’s report. These issues may have particular relevance in changes of control in the 20% to 50% zone. This was recognised as a critical area when the Code was formulated.

INDEPENDENT ADVISER REPORTS ON SHAREHOLDER ACQUISITIONS

The Code is not only about takeover offers. The Code’s provisions also apply where shareholders increase their control percentages above 20% by acquisitions from other shareholders.

These acquisitions can be approved by a meeting of shareholders under rule 7(c) of the Code, and by allotments by Code companies approved by shareholders under rule 7(d) of the Code.

Under these rules, and also under the terms of some analogous Panel exemptions, an independent adviser’s report on the merits of the acquisition or allotment is required to be provided to the voting shareholders.

In each case the non-associated shareholders are given a special right to approve or reject proposals for another shareholder to increase its control percentage of the Code company. The Panel believes that relevant shareholders should exercise this right with care and on the basis of good advice.

It is an important part of the adviser’s role to ensure that shareholders clearly understand their rights under the Code.

The adviser should be careful not to imply a proposal is meritorious, particularly in the 20% to 50% zone, simply because there are few negatives. Continuing the status quo may well be the more desirable outcome for shareholders unless there are good reasons why they should vote to approve a departure from it.

The Panel has been concerned that some independent adviser reports have not fully addressed important elements of the proposals being considered.

Under the Code, the Panel’s approval of an adviser’s appointment and the preparation of the adviser’s report often have to be undertaken within very tight time periods. The implications of this are:

• applications to the Panel for approval as an independent adviser must be complete in all respects. The Panel’s policy for the approval of independent advisers is set out on its website at www.takeovers.govt.nz;
  
  
• the adviser must have the resources available to complete all the work needed to finalise its report in the required time;
  
  
• the target or subject company itself must have the information and personnel available to provide the independent adviser with the information needed to complete its report, and have the resources to respond to the report.

The tight timeframes set by the Code (at least for takeover offers) create a tension between providing a report comprehensive enough for target company shareholders to be well-informed, while giving the target company directors time to fully consider the report.

This shows how important it is for the adviser and the target company to have sufficient resources to fulfil their responsibilities and deal with any issues.

Since the Takeovers Code came into force in July 2001 the Panel has approved the appointment of some 59 companies, firms or individuals as independent advisers to prepare reports for the purposes of the Code.

WE’D LIKE YOUR COMMENTS

The Panel is interested in feedback from independent advisers on its Guidance Note and plans to meet with advisers later this year to canvass the issues.

MINISTER ANNOUNCES PANEL APPOINTMENTS
Commerce Minister, Hon Lianne Dalziel recently announced the re-appointment of John King as chair of the Takeovers Panel, and the appointment of new members Sue Suckling and Anthony Frankham.

“I am pleased to re-appoint Mr King until March 2005. The introduction of the Takeovers Code has been highly successful, largely due to his leadership and specialist knowledge of the Code,” Lianne Dalziel said.