Proposed Takeover Code amendments on asset valuations

The Code Committee of the Panel (Committee) proposes replacing the current rule on asset valuations (Rule 29) with a new rule which better reflects current practice and clarifies certain aspects (PCP 2018/1, published on 17 October 2018).

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.

The consultation closes on 07 December 2018.

Key aspects of the proposed new rule

Which valuations would be caught?

The new rule would apply 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.

It is 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 would be caught?

The rule would principally apply 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 an investment company.

It would also continue to be capable of applying to valuations of other types of assets or liabilities and the Panel would need to 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 would have to be published. That valuation would then be subject to this rule.

What would the valuation report requirements be?

A valuation published during the offer period which falls within the rule would have to 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 would have to 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 could only be published if it was 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.

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

No material difference statement

There would be 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, the directors would have to confirm that the valuer has confirmed to them that an updated valuation would not be materially different or publish an updated valuation.

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 the potential tax liability which would arise from the sale of the assets. If the estimate is not included in the valuation report then it would have to 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 a meaningful estimate could not be given and as to the tax consequences of a sale of the assets.

Profit forecast

There would be 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 cannot normally publish a valuation of the assets of the other party unless supported by an unqualified valuation report will be retained.

Consequential amendments

Consequential amendments are also proposed to Rules 23.2, 26.3 and 27.2.