Takeover Code amendments on asset valuations - effective April 2019

An overview of the Panel’s Response Statement RS 2018/1

The Code Committee of the Panel (Committee) has replaced the current rule on asset valuations (Rule 29) with a new rule which better reflects current practice and clarifies certain aspects, (RS 2018/1) following its consultation in 2018 (PCP 2018/1).

The rationale for Rule 29 is that if an asset valuation is given in connection with an offer, it is likely to be of such fundamental importance to offeree company shareholders when deciding on the merits of the offer that they should have the benefit of an opinion on the valuation from an independent expert valuer.

These amendments will take effect on 01 April 2019. They will apply to all transactions, including those that straddle that date, unless it would give the amendments retrospective effect.

Key aspects of the new rule

Which valuations are caught?

The new rule applies to an asset valuation published by the offeree company or a securities exchange offeror:

  • during the offer period
  • in the 12 months before the start of the offer period, or
  • more than 12 months before the start of the offer period if attention is drawn to that valuation in the context of the offer,

unless the Panel decides that the valuation is not material to offeree company shareholders in making a properly informed decision as to the merits or demerits of the offer (which will depend on the particular circumstances).

Rule 29 does not therefore apply to an asset valuation published by a cash offeror in respect of its own assets. It is also not intended to apply to a valuation of assets or liabilities published in a company’s financial statements only as a result of accounting practices and which is not otherwise used to argue the merits or demerits of the offer.

Which assets are caught?

The rule principally applies to valuations of:

  • land, buildings, plant or equipment
  • mineral, oil or gas reserves, and
  • unquoted investments representing in aggregate 10% or more of the gross asset value of the party to the offer which published the valuation.

It also continues to be capable of applying to valuations of other types of assets or liabilities and the Panel should be consulted on these.

If an offeree company or a securities exchange offeror publishes, or has published, a net asset value figure or an adjusted net asset value figure in circumstances where Rule 29 would apply if a valuation had been published in respect of the underlying assets, a valuation of those underlying assets must be published. That valuation would then be subject to this rule.

What are the valuation report requirements?

A valuation published during the offer period which falls within the rule must be in the form of, or accompanied by, a valuation report, unless the Panel’s consent is obtained.

A valuation published in the 12 months or more before the start of an offer period which falls within the rule must be confirmed in, or updated by, a valuation report, unless the Panel’s consent is obtained.

Independent valuer: the valuation report must be prepared by an independent valuer who satisfies certain requirements set out in the rules.

Content: the rules set out what must be included in a valuation report.

Timing: a valuation published during an offer period can only be published if it is accompanied by the valuation report.

Valuation reports for a valuation published in the 12 months or more before the start of an offer period must be included in the offer document or offeree company’s board circular (as appropriate) or, if earlier, in the first announcement or document published during the offer period which refers to that valuation.

The Panel can consent to a delay in the publication of a valuation report but will only agree a delay beyond the date of the offer document or offeree board circular in exceptional circumstances.

Publication on website: the valuation report must be published on a website but there is no longer a requirement to publish an associated report or schedule containing details of the aggregate valuation.

No material difference statement

There is a new requirement that, if the date at which the assets were valued is not the same as the date of the document or announcement in which the valuation report is published, either:

  • the directors must confirm (in the document or announcement) that the valuer has confirmed to them that an updated valuation would not be materially different, or
  • an updated valuation must be published.

Potential tax liability

The new rule clarifies that, except with the consent of the Panel, the document or announcement in which the valuation is published must include an estimate of the amount of any potential tax liability which would arise from a sale of the assets. If the estimate is not included in the valuation report then it must be given by the directors.

If the Panel agrees that an estimate is not required, the document or announcement in which the valuation is published must explain why an estimate cannot not be given and describe the tax consequences of a sale of the assets

Profit forecast

There is a new requirement to consult the Panel in advance of the publication of the information in the valuation report if that information could constitute a profit forecast.

Valuation of other party’s assets

The existing requirement that a party to an offer will not be allowed to publish a valuation of the assets of the other party unless supported by an unqualified valuation report has been retained.

Consequential amendments

Consequential amendments have also been made to Rules 23.2, 26.3 and 27.1.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.