In brief

  • The Takeovers Panel has updated its Takeover Documents Guidance Note 18.
  • The Panel is encouraging use of expert reports even where not strictly required – and accepted ASIC’s submission that targets are often required to provide an expert valuation to their shareholders to comply with their target statement disclosure obligations.
  • The ‘clear, concise and effective’ concept from prospectus law now applies to Takeover Documents.

The Takeovers Panel has released updated guidance on Takeover Documents, in new Guidance Note 18.

The Guidance Note previously applied only to bidder’s statements but now extends to target’s statements, expert reports, premia and intention statements, as well as to related marketing material.

This followed a consultation paper. The Panel was not bowled over in the rush of comments, with ASIC alone making a submission.

Indeed, one of the more interesting aspects of the revised guidance is ASIC’s continued focus on the need for targets to provide valuation material in target’s statements.

The consultation draft said:

‘The Panel encourages target directors to make a recommendation. They do not need to value the target’s shares to do so.

At the suggestion of ASIC, the Panel amended this, and the final published Guidance Note 18 says instead ‘they do not necessarily need to value the target’s shares to do so.’

ASIC’s expectation, expressed in its submission and in ASIC guidance, is that a valuation will often be required, particularly where the target makes a ‘reject’ recommendation. ASIC accepts that ‘it may be possible in unusual situations’ for a target to recommend rejection of the bid for other, qualitative reasons.

ASIC also considers that, regardless of any recommendation, target directors must provide some guidance as to the value of the target. ASIC notes that:

  • to provide guidance as to value will not always require the target to engage an expert,
  • however, in some cases, it may not be possible to provide shareholders with useful guidance about the value of the target without engaging an expert (ASIC gives an example where the target has no earnings history or short term revenue prospects and where the equity or enterprise values in the financial accounts may not have a close correlation with the target’s share price), and
  • for companies in the mining/exploration or biotech sectors with these features, this may require a technical specialist to be engaged.

The Panel notes that expert reports are required in some situations (eg common directors of bidder and target, the bidder starting with at least 30%, or where required to test the minimum bid price rule), and are ‘desirable in others’. The Panel encourages the use of expert’s reports ‘in appropriate situations’ even when not required. Unsurprisingly, this was supported by ASIC.

Consistent with the position across corporate law documentation generally, the Guidance Note now requires Takeover Documents including expert’s reports to be ‘clear, concise and effective’.