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Australia – Panel Finalises Updated Guidance On Takeover Documents.

9 May, 2012

 

In brief 

 

  • The new guidance on takeover documents is largely unchanged from the draft issued in December 2011.
  • ASIC's submissions provide some interesting insights as to its views.

 

The Takeovers Panel has released an updated Guidance Note 18, renamed Takeover Documents, which broadens the application of the Panel guidance and provides further detail as to the information required in takeover disclosures.

 

The final version of the updated guidance is largely unchanged from the draft released late last year (discussed in our December 2011 Takeovers Legal Update). ASIC was the only party that made submissions on the draft.

 

The main changes to the draft are described below, together with noteworthy comments from ASIC's submissions.

 

Recognition of the utility of the pre-announcement premium

 

In its submission, ASIC observed that bid prices are often compared to the target's share price as at the date immediately before the announcement of an offer and suggested that the utility of this could be noted. In response, the Panel has added an acknowledgment that such a comparison can be useful for shareholders "because the pre-announcement price is less likely to be influenced by the bid." However, the Guidance Note continues to provide (as discussed in our December 2011 Takeovers Legal Update) that statements of premia may constitute unacceptable circumstances unless prices as at the most recent practicable date are included.

 

Valuations to support directors' recommendations

 

ASIC's submission took issue with the unqualified statement in the draft guidance that target directors do not need to value the target’s shares to make a recommendation. ASIC submitted that in certain situations it will often be appropriate for directors to provide shareholders with an expert's valuation rather than simply presenting financial information. ASIC gave as examples of cases where an expert's valuation may be required where the target has "no earnings history or short term revenue prospects" or where the equity or enterprise values in the accounts may not correlate with the target's share price. In response, the Panel has added a footnote stating that guidance as to the value of the target is usually required and that it may be desirable or necessary to get expert advice in certain cases, such as if there is no earnings history.

 

While expert's valuations can provide useful insight in cases where financial accounts may not tell the full story, we caution against directors relying solely on an expert's valuation in formulating their recommendation. In our experience, directors will need to carefully consider both financial and qualitative aspects of a bid on a case by case basis and take into account the particular characteristics of the target. Directors should also consider the principles in the Panel's Guidance Note 22 Recommendations and Undervalue Statements when giving guidance or making a recommendation to shareholders.

 

Comment

 

Our other comments in our December 2011 Takeovers Legal Update remain relevant. In particular, the new Guidance Note 18 does not address the more controversial areas of disclosure of forecasts or the use of concise expert's reports. In our view, including guidance as to the Panel's position on these issues would have been helpful. 

 

 

For further information, please contact:

 

Bill Koeck, Partner, Ashurst

bill.koeck@ashurst.com

 

Brady Weissel , Ashurst 

brady.weissel@ashurst.com

 

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