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EXECUTIVE SUMMARY

INTRODUCTION

THE NEED FOR AN INDEPENDENT ADVISER'S REPORT

CODE PROVISIONS THAT REQUIRE INDEPENDENT ADVISER'S REPORTS
Rule 18 independent adviser's reports
Rules 7(c) and 15
Rules 7(d) and 16
Rule 21 independent adviser's reports
Rule 22 independent adviser's reports
Rule 57 independent adviser's certificates
Independent Experts
RESPONSIBILITIES OF THE INDEPENDENT ADVISERS AND CODE COMPANY DIRECTORS

THE NUMBER OF INDEPENDENT ADVISERS CONSIDERED BY THE PANEL

THE PROCESS FOR CONSIDERING INDEPENDENT ADVISER APPLICATIONS

THE APPLICATION
THE PROCESS
INDEPENDENCE
The balance between independence and qualifications and experience
Effect of financial standing on independence
QUALIFICATIONS AND EXPERIENCE

THE EVOLUTION OF THE PANEL'S POLICY ON APPROVALS

APPROVAL OF NEW PERSONS AS INDEPENDENT ADVISERS
APPROVAL OF INDIVIDUALS AS INDEPENDENT ADVISERS
APPROVAL OF AN INDEPENDENT ADVISER BEFORE BIDDER CONFIRMED
APPROVAL OF THE SAME INDEPENDENT ADVISER ACTING FOR A SECOND TIME
APPROVAL OF AN INDEPENDENT ADVISER AFTER A PREVIOUSLY UNSATISFACTORY IAR
APPROVAL OF OVERSEAS PERSONS AS INDEPENDENT ADVISERS
PANEL APPROVAL - FOR THE ENTIRE FIRM OR NAMED PARTIES WITHIN THE FIRM?
THE PANEL AND THE NZX: INDEPENDENT ADVISER'S REPORTS AND APPRAISAL REPORTS

CONTENT AND QUALITY OF IARS

MERITS OF A PROPOSAL - WHAT ARE THE “MERITS”?
Definitions of “merits” adopted by independent advisers
FURTHER GUIDANCE ON IARS
REVIEWING DRAFT IARS
MEETINGS WITH INDEPENDENT ADVISERS

CONCLUSION

EXECUTIVE SUMMARY

• The requirement for the appointment of an independent adviser is a key element in New Zealand's Takeovers Code ("Code"). The Takeovers Panel ("Panel") considers that the role of the independent adviser is critical to the Code's effectiveness in market regulation for the control of companies.
• The Panel has undertaken a comprehensive review of its policies for the approval of independent advisers and of their role and performance in the first three years of the Code's operation (1 July 2001 to 30 June 2004).
• The Panel considered 122 independent adviser's applications in the first three years of the Code. Of these, the Panel approved 106 (86.89%) and declined 16 (13.11%). Sixty-two of these applications related to reports required for takeover offers and 59 related to proposed acquisitions or allotments under the Code.
• The Panel's conclusions from its review are:
  • The Code correctly prescribes the need for independent adviser's reports for takeovers and other Code transactions, with minor exceptions where the Panel has already recommended change.
  • Independence from the relevant parties and appropriate qualifications and experience are crucial to an independent adviser's effectiveness.
  • The Panel's procedures for approving independent advisers are appropriately rigorous but are kept under review and amended as necessary in response to market developments.
  • It is important to encourage new participants into the independent adviser market while at the same time trying to ensure that those who are approved prepare reports of a high standard.
  • The Panel provides guidance to prospective and appointed independent advisers through the policies on its website, its published guidelines for independent advisers, its regular feedback meetings with advisers, and the executive's review of draft reports.
  • It is necessary for the Panel, through its executive, to continue to review draft independent adviser's reports and comment to advisers as appropriate.
  • There is no need to make any fundamental change to the role of independent advisers under the Code, or to the Panel's approach to the approval of advisers for Code purposes.

INTRODUCTION

1. The requirement for the appointment of an independent adviser is a key element in New Zealand's Takeovers Code ( "Code"). The Takeovers Panel ("Panel") considers that the role of the independent adviser is critical to the Code's effectiveness in market regulation for the control of companies.
2. The Panel has reviewed its policies for the approval of independent advisers in light of its experience since the Code's commencement on 1 July 2001. This report discusses the Panel's current policies on the approval of independent advisers and the changes to those policies in the three years to 30 June 2004.
3. The Panel considers that the need for independent advisers as prescribed in the Code remains appropriate and that the Panel's procedures for approving advisers are sound.

THE NEED FOR AN INDEPENDENT ADVISER'S REPORT

4. An independent adviser's report ("IAR" or "report") is required when a takeover offer is made for a code company or when a code company proposes certain acquisitions or allotments under the Code. A code company is currently defined by rule 3(1) of the Code as a company that is, or was in the 12 months previously a party to a listing agreement with a registered exchange; or that has over 50 shareholders and $20 million in assets.
5. The Panel is empowered by section 15 of the Takeovers Act 1993 and rule 3 of the Code to approve a person to act as an independent adviser. Rule 3(1) states that an independent adviser means "an adviser whom the Panel considers is independent and who is approved by the Panel for the purposes of" the Code.
6. The Panel has interpreted rule 3(1) to mean that it must approve the appointment of an adviser for each report required under the Code. This means that the Panel must satisfy itself of the independence, qualifications and experience of the adviser for every instance when an adviser is required. There is no approved list of independent advisers, although a number of firms are recognised as having the required expertise for most adviser appointments.
7. An IAR assesses the "merits" of a proposed transaction by, or an offer for, a code company (rules 18 and 21). Alternatively, an IAR certifies that the consideration offered under certain offers for, or compulsory acquisitions of, a code company is fair and reasonable (rules 22 and 57(1)).

CODE PROVISIONS THAT REQUIRE INDEPENDENT ADVISER'S REPORTS

8. An IAR is required when one of the following Code provisions applies:

9. An IAR may also be required if the Panel grants an exemption from certain provisions of the Code (both class and specific exemptions) that is conditional on obtaining an IAR. One example of this is the buyback class exemption (clause 4 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001 (S.R. 2001/170)).

Rule 18 independent adviser's reports

Rules 7(c) and 15

10. Where a person seeks to acquire voting securities in a code company, with the approval by ordinary resolution of non-associated shareholders (rule 7(c)), rule 18 requires an IAR pursuant to rule 15 (the requirements of a notice of meeting). The IAR must assess the merits of the proposed acquisition from the perspective of shareholders who may vote on the acquisition.

Rules 7(d) and 16

11. Similarly, if a code company seeks to allot voting securities with the approval by ordinary resolution of non-associated shareholders (rule 7(d)), rule 18 requires an IAR under rule 16 (the requirements of a notice of meeting). Again, the report must assess the merits of the proposed allotment from the perspective of shareholders who may vote on the allotment.

Rule 21 independent adviser's reports

12. Where a full or partial offer is made for a code company, rule 21 requires the directors of the target company to obtain an IAR on the merits of the offer.

Rule 22 independent adviser's reports

13. An offeror must obtain a rule 22 report, where a full or partial offer for a code company is made, and there is (a) more than one class of equity security (in respect of full offers); or (b) more than one class of voting security (in respect of partial offers).
14. The rule 22 report is issued (in full or summary) with the notice of takeover. The purpose of the report is to certify that the offer is fair and reasonable as between the classes of securities. Without that certification, the offer will not comply with the Code.

Rule 57 independent adviser's certificates

15. An independent adviser may be required to provide a certification under rule 57(1) when equity securities are compulsorily acquired by a dominant owner. The adviser must certify that the cash consideration for compulsory acquisition is fair and reasonable. Without this certification, the compulsory acquisition will not comply with the Code. An adviser under rule 57(1) is only required in the case of a Code offer when the consideration for the compulsory acquisition of the securities cannot be determined by the provisions of rule 56.

Independent Experts

16. An independent expert may be required to determine the value of the securities in a code company when a dominant owner is compulsorily acquiring the outstanding securities in that company. If shareholders holding a certain percentage of outstanding shares have the right to, and do, object to the consideration specified in the dominant owner's acquisition notice, the Panel must appoint an expert to determine the fair and reasonable value of the securities. This determination can be either higher or lower than the consideration in the acquisition notice, and the expert's decision is final. In the first three years of the Code, the Panel approved one independent expert pursuant to rule 58(1) of the Code. (Since 30 June 2004, the Panel has approved one further independent expert under the Code.)

RESPONSIBILITIES OF THE INDEPENDENT ADVISERS AND CODE COMPANY DIRECTORS

18. Both the independent adviser and the directors of the company commissioning the IAR have responsibilities under the Code. When a rule 18 report is required, the company directors putting the transaction to shareholders for approval must appoint an independent adviser. When a rule 21 report is required, the target company directors appoint the adviser. When a rule 22 report is required, the offeror appoints the adviser. All appointments are subject to Panel approval.
19. The party commissioning the adviser must ensure that a Code compliant IAR accompanies either the notice of meeting (rule 18), target company statement (rule 21), or takeover offer document (rule 22). Part of this duty includes giving the adviser all information necessary to provide an appropriate report. The directors should also review the draft report to ensure that the report covers all relevant issues for shareholders. Directors should consider the quality of the content and opinion of the reports before accepting them.

THE NUMBER OF INDEPENDENT ADVISERS CONSIDERED BY THE PANEL

19. In the first 3 years of the Code, from 1 July 2001 to 30 June 2004, the Panel considered 122 applications to act as independent adviser for the purposes of the Code. The Panel approved 106 (86.89%) and declined 16 (13.11%) of these applications. The applications related to the following provisions of the Code:

20. Of the 106 applications approved by the Panel, 17 different organisations and one individual were approved. Of the 16 applications declined by the Panel, nine different organisations and one individual were declined.
21. Thirteen applications were declined because the Panel considered that the applicants were not sufficiently independent from the proposed transaction. One application was declined because insufficient information was available regarding the identity of the parties to the proposed transaction.
22. Two applications were declined because of lack of professional indemnity insurance and financial strength. One of these was subsequently approved after obtaining the required insurance cover.
23. One application was declined because the Panel was not satisfied that the applicant had demonstrated that it was appropriately qualified and experienced to prepare an IAR. The Panel had concerns about another applicant's qualifications and experience but as the application was declined on another basis, it did not consider the matter further.
24. One adviser has been told that, due to the poor quality of its IAR, the Panel was not minded to approve it again.

THE PROCESS FOR CONSIDERING INDEPENDENT ADVISER APPLICATIONS

THE APPLICATION

25. The Panel considers an applicant's independence from the parties to the transaction ("independence") and its qualifications and experience relevant to preparing an IAR on the transaction ("qualifications and experience").
26. The Panel requires the applicant to describe its independence, experience in preparing advisory reports and, if it is a firm or company, an outline of its structure. The Panel's guidelines for applicants are on its website, "Policy on the Approval of Independent Advisers" and in its publication, Code Word (No. 3).
27. The Panel also requires written confirmation from the person or entity commissioning the applicant, of its desire that the applicant be appointed. This avoids potential advisers touting a Panel approval to a company known or expected to require an IAR.
28. The Panel executive will help a potential applicant to consider whether or not to submit an independent adviser's application to the Panel. This may include discussion on the person's experience in preparing similar reports or on its independence from the relevant parties involved.

THE PROCESS

29. Processing an independent adviser's application takes three to four working days. This includes communication by the executive with the applicant, Panel members and other relevant parties. The time taken for this process has reduced from six to seven working days when the Code first came into force. When an application requires urgent consideration, or there are no or few issues of independence or qualifications and experience, the process may only take a day or two.
30. In most cases there is only one Panel division meeting per application, which takes from 10 - 30 minutes. If Panel members have concerns about aspects of an application, they ask the executive to seek further information. Occasionally an applicant is invited to participate in the meeting. At times the division gives provisional approval pending clarification of an issue.
31. The Panel considers it is appropriate to involve Panel members in the approval of independent advisers. Their wide experience is often invaluable in considering different issues of independence, qualifications and experience.
32. When the Code first came into force concerns were expressed in the market about the apparently short timeframes for an independent adviser to complete its task, particularly under rule 21 of the Code.
33. The Panel considers that it has managed this concern effectively. The Panel provides a quick turn around for independent adviser applications. It provides guidance to applicants on its website. In some circumstances, the Panel has also approved rule 21 advisers before a takeover notice has been issued, thus further extending the period given for preparing the IAR.
34. The Panel has also noted a growing realisation in the market that shareholders should wait until they have received the target company statement and IAR before deciding whether to accept a takeover offer. As a result, there is less pressure on the target company to issue its statement at the same time the offer document is despatched. This means another 14 days is available to prepare the IAR.

INDEPENDENCE

35. The Panel has deliberately set the threshold for independence at a high level. The Panel considers that for an adviser to be sufficiently independent, it must be able to, and be seen to be able to, provide an unbiased report on the proposed transaction or offer. Accordingly, an adviser whom the Panel considers to be independent is one that is not and has not been, or is not likely to be or seen to be, influenced by any relevant party to the matter when preparing the report.
36. An applicant must disclose to the Panel any prior or existing relationships between it or its associates or affiliates and all relevant parties. This checking is extensive. Such relationships may include for example, providing economic or tax advice, or acting as auditor to any party or related party to the transaction or offer. They also extend beyond corporate relationships to include individual associations (both past and present). The Panel has listed the information that it requires from the applicant in its note, "Policy on the Approval of Independent Advisers".
37. The Panel does not automatically decline an application due to a prior or existing relationship (either business or personal) that the applicant may have with a party involved in the transaction. If relationships exist, the Panel reviews the nature and extent to which the relationship may affect independence.
38. The following types of relationships are likely to lead the Panel to conclude that the independent adviser applicant is not sufficiently independent:

39. In the first three years of the Code 16 applicants were declined by the Panel. Of these, 13 applicants were declined because of lack or perceived lack of independence from the offer/transaction.
40. Concerns over an applicant's independence have arisen for large firms, often multi-disciplinary companies, or those with overseas affiliations. Such applicants usually have sufficient qualifications and experience to prepare an IAR, but issues of conflict arise because it or a related party has acted for, is acting for, or has a relationship with, parties associated with the offer/transaction.

The balance between independence and qualifications and experience

41. On some occasions it is necessary to balance relative independence with the qualifications and experience of an applicant. With a limited number of independent advisers available in New Zealand, issues of independence in relation to international firms are likely to become increasingly difficult.
42. In one situation, an applicant was first declined by the Panel due to perceived conflict, but was later approved. In reconsidering the application, the Panel noted that a number of other suitable potential advisers had more direct conflicts in respect of the offer than those of the applicant. Given this, and the importance of the expertise of the adviser, the Panel approved the application.
43. Now that there are only four major world-wide accounting firms, and there is a trend to separate audit and advisory work between different firms, any major takeover could see all four accounting firms ineligible to prepare an IAR. This illustrates the importance of the Panel's initiatives to encourage new advisers to enter the market.
44. The Panel has been criticised for being too strict on conflicts. There appears to be a risk that by effectively excluding major accounting firms from most large assignments the quality of IARs could decline as smaller firms are used. One or two firms are known to not engage in audit work and therefore do not have issues with conflicts arising from that type of relationship. Despite the risk, the Panel considers that independence is paramount and will continue to maintain a high threshold in its approval policy.

Effect of financial standing on independence

45. The Panel considers that a lack of a professional indemnity insurance or financial substance may limit an adviser's freedom in producing an IAR. As a matter of policy, where an applicant does not have professional indemnity cover, it must be able to demonstrate that it has sufficient financial strength to justify the lack of insurance. In practice, those firms without professional indemnity insurance have also lacked financial strength.

QUALIFICATIONS AND EXPERIENCE

46. The Panel requires an independent adviser applicant to provide information outlining its qualifications and experience. This includes the curricula vitae of the people who would be involved in preparing the report and previous experience that makes them suitable for approval. This could include past work such as reports prepared under the Listing Rules of the New Zealand Exchange Limited ("NZX")). The Panel has listed the information that it requires from the applicant in its policy, "Policy on the Approval of Independent Advisers".
47. Of the 16 applicants that the Panel has declined in the first three years of the Code, one was because of lack of qualifications and experience for preparing the report. One adviser was told that the Panel would not be minded to approve it again because the Panel was not satisfied with the quality of an IAR prepared for a particular transaction.

THE EVOLUTION OF THE PANEL'S POLICY ON APPROVALS

48. The Panel's policy on approvals is not static. It has evolved in response to experience. When the Panel considers changes to its independent adviser policy, the intention is to ensure that the Code's purpose and objectives are achieved. The following section explains developments to the Panel's policy on the approval of independent advisers.

APPROVAL OF NEW PERSONS AS INDEPENDENT ADVISERS

49. The Panel has encouraged code companies to use new independent advisers to increase the scope and improve the quality of IARs. When the Code first came into force, most reports were prepared by the few large firms. As the Code and the role of the independent adviser have become more established, the number of smaller firms and individuals applying to act as independent advisers has increased noticeably.
50. There are certain risks in increasing the number of advisers. There could be a decline in the overall standard of IARs, with some lesser-quality reports being produced. Further, a company commissioning an adviser may base its choice on the lowest fee, rather than the likely quality of the report. The Panel has therefore implemented policies to maintain and encourage improved consistency and standards of IARs. These include (a) issuing guidelines for independent advisers which set out the requirements of an IAR; (b) asking prospective advisers to provide the Panel with examples of valuation reports or independent appraisal reports they have prepared; and (c) reviewing draft IARs before they are sent to shareholders. The latter policy applies to all advisers, whether new or experienced (see below at paragraph 74).

APPROVAL OF INDIVIDUALS AS INDEPENDENT ADVISERS

51. In the first three years of the Code, the Panel considered two individuals to act as an independent adviser. The Panel is not averse to approving individuals to act as advisers provided they are independent from the relevant parties to the transaction; are appropriately qualified and sufficiently experienced to prepare the IAR; and demonstrate the required substance directly or by way of insurance.

APPROVAL OF AN INDEPENDENT ADVISER BEFORE BIDDER CONFIRMED

52. The Panel has approved rule 21 advisers before a takeover offer has been made, or before the bidder for the target company is confirmed. The Panel will only consider doing so if the applicant provides a shortlist of bidders so that their independence can be assessed. Approval may then be granted on the basis that the bidder is one of the parties on the shortlist. The Panel must be satisfied that the applicant is sufficiently independent from all potential relevant parties.

APPROVAL OF THE SAME INDEPENDENT ADVISER ACTING FOR A SECOND TIME

53. The Panel considers that in some situations the same adviser may be able to act for a second time in related transactions, provided that the tests for qualifications, experience and independence are still met. An applicant's independence may not be compromised by the fact that it has prepared another IAR under the Code for the same or a related transaction.
54. The Panel has approved the same adviser to prepare a rule 22 report for a repeat offer for the same company, made by the same offeror at different times.
55. Recently however, the Panel declined an application from an adviser to prepare a rule 57 report on the basis that it had prepared a rule 21 report in respect of the same transaction. The Panel considered that a new adviser would bring a fresh perspective to the analysis, whereas the same adviser was likely to use the same methodology as in its rule 21 report.
56. A point may be reached where an adviser will not be sufficiently independent because of the number of reports it has prepared for the same company. A relationship may develop between an adviser and a code company when several IARs are prepared which could compromise the degree of independence required by the Panel.
57. The Panel considers that its policy is evolving satisfactorily in this area. The Panel treats each case on its merits and there will be occasions where it is not appropriate to have the same adviser appointed to successive or linked transactions involving the same parties.

APPROVAL OF AN INDEPENDENT ADVISER AFTER A PREVIOUSLY UNSATISFACTORY IAR

58. There is no presumption that an adviser, who has previously been approved, will be approved for a future appointment (noted in the Panel's guidance note, "Role of Independent Advisers for the Purposes of the Code"). However, if an applicant is considered unsuitable for a future appointment on the basis of a past report or reports, that adviser will have the opportunity to make submissions to the Panel before it makes a final decision on suitability for approval.
59. In other cases, the Panel has and will deal with matters on a less formal basis, holding discussions with senior representatives of the adviser to discuss the Panel's concerns. In some instances this has been sufficient and the adviser has been approved to prepare an IAR for subsequent matters.

APPROVAL OF OVERSEAS PERSONS AS INDEPENDENT ADVISERS

60. From time to time, the Panel has approved overseas-based independent advisers. The Panel has no specific policy for dealing with these applications. However, when making independence checks, advisers are expected to ask their global affiliates whether they have any business relationships with parties to the particular transaction or takeover. Applicants have been declined because of relevant overseas relationships.

PANEL APPROVAL - FOR THE ENTIRE FIRM OR NAMED PARTIES WITHIN THE FIRM?

61. For the first 18 months of the Code's operation, the Panel approved advisory firms to act as an independent adviser for particular transactions. Although the Panel always sought the curricula vitae of the people who would be responsible for preparing the report, in one or two instances the people put forward to the Panel were not actually involved to any degree in its preparation. Therefore, in February 2003, the Panel decided that, as well as approving the firm, the specific individuals responsible for preparing the report should be named in its letter of approval.
62. The need for this approach was highlighted by one instance where the Panel approved a firm to advise and expected that one of the persons identified in the application, who appeared to have sufficient expertise in the area, would take part in preparing or at least reviewing the report. However, the drafts and final IAR were poor in both analysis and presentation despite the Panel executive giving advice on numerous points throughout the preparation. Upon enquiry, the executive found that the individual named in the application had barely been involved in preparing the report and had not reviewed it.
63. The Panel's policy of identifying the particular parties who will be involved in preparing the IAR appears to work well. The Panel intends to continue with this policy.

THE PANEL AND THE NZX: INDEPENDENT ADVISER'S REPORTS AND APPRAISAL REPORTS

64. Certain transactions require both an IAR under the Code and an appraisal report under the NZX Listing Rules. The NZX administers and enforces the Listing Rules through its newly formed, NZX Discipline. Previously, the NZX Market Surveillance Panel ("MSP") was responsible for this task.
65. If a proposed transaction requires both an IAR and an appraisal report, the Panel considers the independent adviser application separately from the decision of the NZX. Procedurally, the MSP did not generally convey its approval of an appraiser until it was aware of the outcome of the independent adviser application to the Panel.

CONTENT AND QUALITY OF IARS

MERITS OF A PROPOSAL - WHAT ARE THE “MERITS”?

66. Rules 18 and 21 require an IAR to assess the merits of a proposed offer, acquisition or allotment. Neither the Code nor the Panel have defined the term "merits". However, after receiving many queries about its meaning, the Panel published a practice note on this topic in December 2001, "Independent Adviser Reports". A report on the merits of a proposed offer or transaction is wider than a valuation report. An IAR should include strategic advice where appropriate and look ahead to ultimate outcomes if necessary. An IAR must clearly address the merits of the proposal from the point of view of the offerees or the persons voting on the proposal, as applicable.

Definitions of “merits” adopted by independent advisers

67. The Code stresses the importance of informed shareholder participation and facilitation for corporate control. This is shown by (a) the wide scope of the Code's fundamental rule (rule 6); (b) the emphasis placed on independent advice; and (c) a lack of offer price constraints. This implies that any discussion of merits under the Code should be wider than that under the Australian or London regimes which have more specific offer pricing rules and a more limited scope for their fundamental rules.
68. Generally, when preparing reports on the merits for Code purposes, independent advisers drew on guidance from various professional and other sources.

FURTHER GUIDANCE ON IARS

69. In the first 18 months of the Code, some IARs were issued to shareholders without addressing what the Panel saw as important elements of the proposals. Some advisers had not appreciated the Code's philosophy, particularly the rights created for shareholders, and the importance of the adviser's role in this process. Some reports did not explain what a merits analysis encompasses. Others missed out relevant factors including financial analyses, reasons for the transaction or offer occurring, and a company's ability to fund, and the effect of funding, the transaction or offer.
70. In March 2003 and July 2003 (second edition), the Panel distributed a further guidance note on the Role of Independent Advisers for the Purposes of the Takeovers Code, to assist independent advisers. This note is an aide memoire and does not prescribe the matters that an independent adviser must address. The Panel intended that advisers improve the balance and quality of their reports in line with the Code's philosophy.
71. The Panel does not provide a prescriptive list of questions to be addressed in each IAR. This avoids the risk of limiting the scope of some reports. However, the Panel considers that an IAR should include substantive discussions of the relevant parties to the transaction, and the advantages, disadvantages, risks, and alternatives to the proposed course of action. The report should be specific to the facts.
72. The Panel suggests that an independent adviser should not imply that a proposal has merit on the sole basis that there are few negatives. The status quo may be more desirable unless there are good reasons why shareholders should depart from it.
73. The Panel's guidance note has received positive feedback from the market. Various advisers, particularly those preparing a report for the first time, have told the Panel that it has explained the scope and breadth of the task.

REVIEWING DRAFT IARS

74. Since the Code came into force, the Panel has, as a matter of practice, reviewed published IARs. However, in August 2002, the Panel initiated a policy of reviewing IARs before they are sent to shareholders. This was a response to the Panel's concern that some IARs did not adequately address the merits of the proposed transactions or offers. Further, as the number of independent advisers was steadily increasing, the Panel also sought a consistently high standard of IAR. The Panel does not attempt to influence the adviser's judgement or intrude on its independence in respect of the offer.
75. The Panel requests that advisers provide a draft IAR to the Panel executive at the same time it is sent to directors of the target or subject company for factual review. The Panel's policy is to improve the quality of information provided to shareholders before they receive it, rather than resort to enforcement measures after the fact.
76. It is important for an IAR to explain the degree to which the independent adviser has reviewed or tested the veracity of company forecasts. The Panel expects that advisers would not accept forecasts without considering the likelihood of their being well founded.
77. The policy of reviewing reports has had positive results, albeit with a mixed beginning. The Panel has received appreciative feedback from a number of independent advisers relating to the review of their draft reports. The Panel considers that reviewing drafts has driven improvements in the quality of IARs without interference with the advisers' decision on the merits of the proposed transaction. Reviewing has been effective where advisers have omitted relevant considerations in their analysis or have incorrectly interpreted the Code. It has also been useful for new advisers when they are not familiar with the requirements of an IAR. On several occasions, advisers have corrected misinterpretations of Code provisions included in their draft reports. The Panel will continue with this policy for the immediate future.

MEETINGS WITH INDEPENDENT ADVISERS

78. The Panel has met with independent advisers in 2002 (separate meetings with firms), 2003 and 2004 (group meetings with many firms). These meetings have covered, among other things, the role of the independent adviser, applications for approval, the content of IARs, and the Panel's guidance note. The Panel has received positive feedback from these meetings. Accordingly, it will continue this practice of meeting with independent advisers.

CONCLUSION

79. The Panel has undertaken a comprehensive review of the role and performance of independent advisers under the Code, and of its policies for the approval of independent advisers. The review reflects the first three years of operation of the Code. The Panel's conclusions are:

21 December 2004