The Takeover Panel has published a new consultation paper (PCP 2018/1, available here) proposing changes to the rules relating to asset valuations. The proposed changes do not alter the Panel's fundamental approach to asset valuations but are intended to clarify the specific requirements and better reflect the Panel's current practice in this area. The proposal is to delete current Rule 29 of the Code in its entirety and replace it with a revamped version.
Key changes proposed include:
- Change of emphasis: The proposed changes serve to emphasise the fact that the Rule applies not only to property valuations but also to valuations of other asset classes, in particular mineral, oil and gas reserves and unquoted investments. The requirements would continue to apply both to offerees and securities exchange offerors, but not to cash offerors.
- When the requirement is triggered: The current requirement to report on a valuation given "in connection with an offer" is proposed to be replaced by a requirement to report on a valuation published during an offer period or in the preceding 12 months or, if older, where attention is drawn to the valuation in the context of an offer. Exceptions are retained for where the valuation is not considered by the Panel to be material to shareholders including (normally) where the valuation is published solely in financial statements under a company's accounting policies and not otherwise referred to.
- "No material difference" statements: The PCP contemplates the removal of the concept of a "current" valuation given the uncertainty in how to interpret "current" and instead proposes a requirement similar to that imposed by ESMA where a property company issues a prospectus. If the date of valuation of the assets is different from the date of the announcement or document in which the valuation report is published, the announcement/document must include a statement by the directors that the valuer has confirmed that an updated valuation would not be materially different. The valuer's confirmation would also then need to be published on a website. If such a statement cannot be made, an updated valuation would need to be published.
- Potential profit forecasts: The proposed new Rule 29 introduces a requirement to consult the Panel in advance if the publication of information contained in a valuation report could constitute a profit forecast - this appears to be intended primarily to remind market participants of this risk, particularly in the context of oil and gas companies setting out detailed projections of revenue and cost cash flows within valuation reports.
The proposals also update the requirements that a valuer must satisfy and the content requirements for a valuation report, in each case in line with market practice.
The deadline for responses to the consultation is 7 December.
Comment: Prior to publishing the PCP, the Panel had undertaken an informal pre-consultation exercise with the RICS, the ICAEW, institutional investors, professional valuers and financial advisers. The changes proposed seem sensible and to achieve the objectives of modernising and clarifying the requirements for reporting on asset valuations without looking to change the fundamental principles behind this longstanding rule nor to alter market practice materially.