The purpose of this note is to assist those who are approved as independent advisers by the Panel for the purposes of a report under any of rules 18, 21 or 22 of the Code or under a class exemption or specific exemption granted by the Panel from the Code. It should be considered an aide memoire. It is not intended to be a prescription by the Panel as to the matters an independent adviser must address in any report prepared for the purposes of the Code. It is expressed in general terms only and should not be regarded as comprehensive in any particular case. It should not be regarded as definitive and may be amended by the Panel from time to time.

This is the third edition of the guidance note and replaces the previous edition issued by the Panel in July 2003.

The Code requires the adviser to give an assessment of the "merits" of the particular offer (takeover), acquisition (share transfer or buyback), or allotment from the point of view of the recipient (in the case of a takeover offer) or of the person who is required to vote on the proposal (acquisition or allotment).

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. A primary focus of a Code report would often be the merits of incremental changes in voting control. These issues may have particular relevance in changes of control in the 20% to 50% zone which was recognised in formulating the Code as a critical area.

The Panel believes that an important role of the independent adviser is to advise shareholders of their rights under the Code, and suggests 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. It may well be that continuation of the status quo is the more desirable outcome unless there are good reasons why the shareholders should vote to approve a departure from it.

The Panel has for some time now been reviewing advisers' reports in draft form before they are finally distributed to shareholders. This process prompted the Panel to prepare the earlier versions of this guidance note. Recent developments in the market have prompted the Panel to issue this updated version.

The matter of original concern to the Panel was that advisers did not always inform shareholders of the protections and rights available to them under the Code or of the options available to the acquirer/bidder as a result of the Code. These issues have been largely addressed by advisers in their reports over the past two to three years. The issues which have prompted this revision of the guidance note include:

In all cases the report must be an independent adviser's report and as such the directors of the target company, the offeror, the acquirer, the seller, the allottee or the allottor should not influence the findings or the choice of subcontractor, should one be needed.

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. The Panel makes the following suggestions in relation to some of the types of report that an adviser may be called on to complete.

Independent advisers' reports play an important role in the scheme of the Code. The Panel takes its responsibilities for approving the appointment of independent advisers very seriously. Frequently, because of the timeframes stipulated in the Code, the approval of the appointment of the adviser by the Panel, and the preparation of the report itself, have to be undertaken in very compressed time periods. This has a number of implications:

The process of preparing and distributing independent advisers' reports within the timeframes stipulated in the Code (at least in relation to takeover offers) creates a tension between providing a report that is sufficiently comprehensive so that the target company shareholders are well-informed, while also providing the directors of the target company with enough time to give full consideration to the contents of the report. This underlines how important it is for the adviser, and the target company, to be adequately resourced to cope with their responsibilities and deal with any issues that are necessary.

In some cases the firm putting itself forward for approval as an independent adviser for a particular takeover or other Code transaction will not have the necessary expertise to deal with all aspects of the adviser assignment. In such cases the primary adviser may need to engage the specialist services of a subcontractor to assist with aspects of its report.

The Panel considers the appointment of the proposed subcontractor at the same time that it is considering the application for approval from the primary adviser.

The Panel would expect the adviser to satisfy itself that the subcontractor it wishes to use has the necessary expertise and independence to undertake the assignment. Advisers must choose their own subcontractors and not allow the target company or any other party to choose a subcontractor for the assignment. In order to maintain the desired level of independence the Panel considers that the work of the subcontractor should be managed by the primary adviser and not, for example, by the target company or bidder.

Although the Panel approves the lead firm as the independent adviser for the purposes of the transaction, any such approval will also incorporate reference to any particular subcontractor that is to be used for the assignment.

Another issue key issue for the Panel is the independence of the proposed adviser

While some precluding interests are obvious, one which has arisen recently and which may not be so apparent concerns requests to approve the same adviser for successive, or follow-on, takeover offers involving the same parties.

As part of its overall consideration of an adviser's application one issue that the Panel will have to consider in such cases is the independence of the adviser if the same adviser were to be approved to prepare the follow-on rule 21 report. Factors the Panel is likely to consider could include: