An independent adviser's description of a partial offer as "fair", on the basis of price, is particularly problematic because either relatively few shareholders will get the benefit of any premium paid by the bidder (because of a low number of acceptances) or, if there are a large number of accepting shareholders, the premium will be well spread. All continuing shareholders will experience the consequences of being minority shareholders in the ongoing company.
It is important that independent advisers give a balanced analysis of all aspects of partial offers to ensure target company shareholders are fully apprised of all the control and other issues. These issues may include the benefits that continuing shareholders will get from remaining in the company with a new controlling shareholder.
Where an offer is being made for 50% or less of the voting rights in the target company the quality of the adviser's advice is particularly important because shareholders have two decisions to make.
It may be in shareholders' best interests to both vote against a partial takeover because the bidder would achieve effective control of the target company while, at the same time, also to accept the offer. If the offer is approved and succeeds, the shareholder will at least sell some of his or her shares.
On the other hand, if a shareholder is comfortable with remaining a minority shareholder in a company effectively controlled by the bidder because of the benefits the shareholder considers the bidder will bring to the target company, then it may well decide to approve the partial takeover but not accept the offer.
The guidance note has been amended to include additional suggestions for independent advisers in relation to their discussion of the merits of partial offers, including those for 50% or less of the target company's voting rights.
During the period of the Code's existence there have been a number of occasions where bidders have made successive offers for the same target company. In the initial years these "follow-up" offers tended to be made a year or more after the first offer had failed to achieve total control for the bidder. However over the past two years some follow-up offers have been made very soon after the closure of the first offer. There is no restriction in the Code on how soon a follow-on offer can be made after an earlier offer has closed.
In two of these follow-on takeovers the same independent adviser was approved by the Panel to prepare the independent
adviser reports under rule 21 of the Code as had prepared the first report. However, in another case, the Panel declined to approve for the second report the adviser who had prepared the first rule 21 report.
This decision was no reflection on the competence or integrity of the particular adviser. Instead, the decision reflected a number of factors including:
Every application for approval of an independent adviser is considered on its merits and in the particular circumstances of the transaction. Where the transaction is a follow-on cash takeover offer for a Code company being made in close proximity to an earlier offer, and the offer is expected to reach the compulsory acquisition threshold, then it is likely that the Panel would not approve the same adviser to prepare the rule 21 report for the final offer that it had approved to prepare the rule 21 report on the previous offer.
The third edition of the Panel's Guidance Note about the Role of Independent Advisers involved in Code transactions is now available on the Panel's website www.takeovers.govt.nz/publications/gn-independent-advisers/.