The Takeovers Panel ("Panel") has released revised versions of its Guidance Note on Independent Advisers and the Code (‘IA Guidance Note’) and its Guidance Note on Target Company Statements ("TCS Guidance Note").

The revisions relate to the content of independent advisor reports. The Takeovers Code Approval Order 2000 ("Code") requires independent advisers’ reports to be prepared at the request of the target company for its shareholders in all takeover offers made under the Code or transactions where the purchase or allotment of shares triggers the requirement that the transaction be approved by an ordinary resolution of the code company. An independent adviser must report on the merits of the particular transaction.

Guidance relating to the disclosure of principal assumptions underlying financial forecasts in target company statements was previously contained only in the TCS Guidance Note. However, it applies equally to independent adviser’s reports prepared in respect of Code-regulated transactions. Consequently, the guidance on principal assumptions has been updated and replicated in the IA Guidance Note. The guidance in the TCS Guidance Note has also been updated.

Independent adviser reports usually set out prospective financial information. Prospective financial information contains financial forecasts based on assumptions about future conditions and events that may or may not occur. The assumptions are subjective in nature and the quality of the report will be dependent upon those assumptions.

The revisions to the Guidance Notes require independent adviser reports to state the principal assumptions on which any prospective financial information is based. The Panel expects these assumptions to directly accompany the relevant prospective financial information and be set out in a way that is helpful and relevant for those reading the report. Providing shareholders with these assumptions assists them in making their own informed judgement on the quality and reliability of the information.

For shareholders to make their own informed judgement, it may also be necessary to provide information which assists them in assessing the sensitivities of prospective financial information. In determining what information to provide, the key question is whether it could reasonably be expected to be material to the making of a decision by the offerees to accept or reject the offer.

The independent adviser reports should also include a summary of the adviser’s conclusions on the merits of the transaction near the front of the report.

Finally, the Panel has decided that excluding advisers with an auditor relationship is unnecessarily restrictive and unrealistic, particularly given the small size of the New Zealand market. The Guidance Notes have been revised to reflect this.

The changes to each Guidance Note were made following recent consultation with representatives of institutional and retail investors, independent advisers, and other market participants.