On 17 October 2018, the Code Committee of the Takeover Panel published a consultation paper (PCP 2018/1) on some proposed changes to the Takeover Code (the "Code") which relate to the manner in which assets are valued in the context of a takeover and the application of Rule 29 of the Code. The consultation closed on 7 December 2018 and a response statement was published by the Code Committee on 6 March 2019 confirming that the proposals contained in the consultation paper will be implemented and come into effect on 1 April 2019, subject to certain minor modifications.
Rule 29 governs the way in which asset valuations are published by a party to a takeover in connection with an offer and for such valuations to be supported by an independent valuation prepared by an expert. The changes are not designed to alter the requirements in a material way, but rather to codify the way in which the Panel currently applies the Code in practice in this area.
These key points of note in relation to the changes are as follows:
Relevant Asset Valuations
The new rule would cover any asset valuation published by an offeree or a securities exchange offeror during:
- the offer period; or
- the 12 months prior to the commencement of the offer period; or
- more than 12 months if attention is drawn to an asset valuation in the context of an offer,
- unless the Panel does not consider the valuation material to offeree shareholders in making a properly informed decision as to the merits/demerits of the offer.
- This differs from the present position under the Code which governs asset valuations that are given "in connection with an offer".
Types of Assets covered
The new requirement will apply to valuations of:
- Land, buildings, plant or equipment;
- Oil and gas or mineral reserves;
- Unquoted investments above a certain threshold; and
- Any other assets which the Panel may deem appropriate (the Panel should be consulted prior to the inclusion of any valuation on other categories of assets).
Timing of Valuation Report
Where a valuation is published during an offer period then the valuation must be in a form of, or accompanied by, a valuation report. Where more dated asset valuations are to be used (i.e. those published prior to the commencement of the offer period) then the party would need to arrange for the valuation to be confirmed and/or updated in a Rule 29 compliant valuation report either in the first announcement or document published during the offer period that refers to or contains the valuation.
Credentials of Valuer
The valuer must be independent and appropriately qualified. Under the proposed rule changes, it will no longer be possible for a valuer to appoint an expert where the valuer lacks the relevant expertise. A separate valuation would need to be prepared by the expert in such cases.
No material difference confirmation
If the date on which the assets were valued differs from the date on which the report is published (i.e. the date of the offer document or offeree board circular), the valuer will need to confirm that an update valuation would not be material different or for an updated report to be published, should that not be the case.
Basis of Preparation
The report will need to state the basis on which the valuation took place. Typically, this would be the market value of the relevant assets.
If the valuation report could constitute a profit forecast then the new requirements will require prior consultation with the Panel about the approach to the taken.
Potential Tax Liabilities
The report will need to include a statement of any potential tax liabilities that may arise, should the assets be sold (other than where Panel consent is obtained). The statement would cover the estimate of any potential tax liabilities, rather than a statement of any or all potential tax consequences.
Publication on Website
Any valuation that is published must be placed on a website.