Because of these influences the Panel became increasingly concerned at the emphasis in independent adviser reports on the "fairness" of offers.
The Panel recently began encouraging independent advisers to discontinue referring to and emphasising the "fairness" of offers and instead to present a more balanced view of the merits (that is, the pros and cons) of the offer. Encouragingly, most recent independent adviser reports on takeover offers have avoided use of the term "fairness" when opining on the price given under an offer.
While the price offered by a bidder as compared with the adviser's assessment of the value of a target company will always be an important merit of an offer, it should not necessarily be the determining factor of acceptance or rejection. For example, the ceding of both immediate and potential future control to the bidder, particularly in the case of partial offers, may well be far more important than the price which the bidder is proposing to pay to achieve that level of control. (Partial takeovers are discussed in more detail later in this article.)
The Panel looks to the directors of target companies to also, themselves, properly address the merits of the offer and give comprehensive and helpful recommendations in the target company statement that is sent to their shareholders. The Panel sees this as an important part of the duties of target company directors.
The Panel's guidance note has been amended to suggest to advisers that they not refer to the "fairness" of an offer in their Code reports except in circumstances where the primary purpose of the report is in relation to the consideration that is likely to be payable on the compulsory acquisition of shares in the target company.
The second issue that has been of concern to the Panel has been that of the use of subcontractors by independent advisers, particularly where there is a special skill required that the approved adviser does not possess.
The term "subcontractor" as used here generally means a professional who has a specialised skill outside of the usual skills possessed by an independent adviser, and who will be reporting to the shareholders of the target company as part of the independent adviser's report.
Although it is the responsibility of the target company board to appoint an independent adviser, that appointment must be approved by the Panel. The Panel carefully considers both the experience and the independence of an adviser put forward for approval.
In some cases it is apparent that the adviser will need specialist help with a particular aspect of an assignment. One example may be that the target company operates in a specialist field such as mineral exploration. Another example may be that the most important aspect of the takeover is that it will result in a change of legal form of the investment (for example conversion from shares in a company to units in a unit trust).
In such cases the firm to be appointed as the primary adviser may need additional assistance, such as specialist mineral valuation advice, specialist legal advice, or specialist financial advice. The person or firm providing this specialist assistance will be a subcontractor to the principal independent adviser and their contribution will be identified and attributed in the adviser's final report.
When the need for such subcontracted assistance arises the Panel expects to see the same standard of competence and independence observed by the subcontractor as for the primary adviser. Detail about any proposed subcontractor should be provided to the Panel along with the original application for the primary adviser's approval. The Panel will satisfy itself as to the competence and independence of the subcontractor before the primary adviser is approved, and the Panel's approval of the primary adviser will be given on the basis that the named subcontractor carries out a particular role.
The Panel's view is that the choice of subcontractor is one which the primary adviser (and not, for example, the target company) must make.