PRACTICE NOTE - INDEPENDENT ADVISER REPORTS

The Code and the Listing Rules of the New Zealand Stock Exchange

Reports by independent advisers are required under several rules of the Code, in particular:

  1. Rule 18 (relating to meetings required to approve allotments or acquisitions of voting securities);
  2. Rule 21 (relating to the merits of a takeover offer); and
  3. Rule 22 (relating to rule 8 and whether the consideration and terms offered as between various classes of voting
    4. securities, and as between classes of voting and non-voting securities, are fair and reasonable).

In some cases a person preparing an independent adviser's report for the purposes of one of the rules of the Code may also be preparing an appraisal report for the purposes of the Listing Rules of the New Zealand Stock Exchange.

Questions have been raised with the Panel as to whether the requirements of the Exchange and of the Panel can be met in a single report for shareholders.

Meeting the dual requirements

The requirements of the Code and of the Listing Rules are not the same. The Panel appreciates that reports made to shareholders on the same proposals will have many common elements. The Panel's view is that any report to the shareholders for the purposes of the Code (rules 18 or 21) must clearly address the "merits" of the proposal from the point of view of either the persons voting on the proposal, or the offerees, as applicable.

While the Panel has some preference for the preparation of separate reports that address the requirements of the Code and the Listing Rules, the Panel considers there should at least be a separate and distinct part of any single report that deals with the question of the merits of the proposal or offer for the purposes of the Code.

The Panel observes that a report on the "merits" of an offer or proposal is not simply a valuation report. It must be wider than that. It should include strategic advice where appropriate. It should look ahead to ultimate outcomes if necessary.

The responsibility for independent adviser's reports

Independent advisers have a responsibility to fulfill the requirements of the Code. Additionally directors have a responsibility to ensure that their takeover offer (rule 22), target company statement (rule 21) or notice of meeting (rule 18) is accompanied by an independent adviser's report that complies with the requirements of the Code.

13 December 2001