Comments on Independent Advisers
Published 1 December 2001
Time and costs of processing approvals
Applications for approval to act as an independent adviser should be sent to the Panel as early as possible and should comply with the Outline for Application set out in CodeWord 3.
The cost to applicants of processing an application has ranged to date from about $1000 to more than $5000.
Disclosure of all information in applications - including relationships with directors & shareholders of parties to the transaction and whether an application has been made to the NZSE.
Frequently the Panel has had to seek more information from prospective independent advisers about their applications. In particular these requests have related to:
- Disclosure of all past and present relationships between the applicant and any other party, including the directors and major shareholders of the parties, as well as the directors and major shareholders of the offeror and the target company. This disclosure should give the nature, extent and duration of the relationship, including the fees earned, the time-frame of the assignments and whether there has been any past or present involvement with any of the parties as auditor.
- Whether the independent adviser has any involvement in other advisory activities associated with the transaction and whether they have had any prior involvement in the transaction, especially the formulation of the transaction.
- If the independent adviser is preparing an appraisal report under the New Zealand Stock Exchange Listing Rules, this should be disclosed.
Each case is considered very carefully. Several applications have been declined because the Panel considered that the nature, extent or duration of a disclosed relationship was such that the applicant was not sufficiently independent.
Subcontractors - must also be independent of the transaction
A subcontractor or consultant who compiles information for an independent adviser’s report must be appointed by the adviser and be independent of the transaction. The adviser must ensure that the subcontractor or consultant is independent and state this in their application.
Practice note - combined reports, merits of the transaction
Reports by independent advisers are required under several rules of the Code, in particular:
- Rule 18 (relating to meetings required to approve allotments or acquisitions of voting securities);
- Rule 21 (relating to the merits of a takeover offer); and
- Rule 22 (relating to rule 8 and whether the consideration and terms offered as between various classes of voting securities, and as between classes of voting and non-voting securities, are fair and reasonable).
A policy/practice note on use of combined reports is published on our website. The essence of this note is:
- a report on the “merits” is not just a valuation; it needs to have a much broader focus;
- the Panel prefers separate reports where both the Code and the Listing Rules are involved, but if there is a combined report it should have a separate and distinct part that deals with the “merits” for the purposes of the Code; and
- directors should ensure that the independent adviser’s report complies with the Code.
Rule 22 statement
An independent adviser’s report under rule 22 is required to report on the fairness of consideration as between two or more different classes of securities. Where such a report is required, it must accompany the takeover offer. The Panel is concerned that shareholders of the target company may see this report and not appreciate that a further report on the merits of the transaction will accompany the target company statement. Accordingly the Panel asks that a report under rule 22 should have a prominent statement at the front to make the position clear. The wording required is contained in the policy on the website.