UK: Takeover Code: New Rules On Asset Valuations

Last Updated: 3 June 2019
Article by David Collins, Richard Barham, Candice Chapman and Anna Janik

A new Rule 29 of the Takeover Code concerning asset valuations came into effect on 1 April 2019 following the publication in March by the Code Committee of the Takeover Panel of its response to its consultation (PCP 2018/1) proposing various amendments. The Code Committee adopted the amendments proposed in the consultation, subject to certain modifications.

New Rule 29 is intended to be a proportionate means of ensuring that asset valuations made in the course of an offer are supported by a valuation report, and aims to be better aligned with market practice and provide more clarity in certain areas. The Code Committee believes that the rules will be beneficial to all parties to offers, their advisers, shareholders and other market participants and practitioners. Key provisions include:

  • Applicable valuations: Rather than simply applying "in connection with an offer", Rule 29 now applies to an asset valuation published by an offeree or a securities exchange offeror (i) during the offer period (ii) in the 12 months prior to the commencement of the offer period or (iii) more than 12 months prior to the commencement of the offer period if attention is drawn to the valuation in the context of the offer (unless, in any case, the Panel considers the valuation not to be material to offeree shareholders for making a properly informed decision about the merits of the offer).
  • Assets subject to valuation rules: Rule 29.1(b) codifies asset classes which have commonly been subject to the valuation rules so as to cover: (i) land, buildings, plant or equipment (ii) mineral, oil or gas reserves and (iii) unquoted investments representing in aggregate 10% or more of the gross asset value of the party to the offer which published the valuation.  The Panel also reserves the right to apply the rule to other assets and recommends early consultation where valuations are relevant.
  • Net asset values and adjustments: Rule 29.1(d) provides that where a net asset (or adjusted net asset) value is or has been published where Rule 29 would apply if a valuation had been published in respect of the underlying assets, a valuation of the underlying applicable assets (see "Assets subject to valuation" rules above) must be published. The offeree/securities exchange offeror must also clearly set out any adjustments made to the valuation of the underlying assets in order to arrive at the net asset (or adjusted net asset) value.
  • Requirement for valuation report: Except with Panel consent, a valuation (i) published during the offer period (Rule 29.1(a)(i)) must be in the form of, or accompanied by, a valuation report or (ii) published in the qualifying timescales before an offer period (see "Applicable valuations" above), must be confirmed in (or updated by) a valuation report – that report must be in the offer document or offeree board circular or, if earlier, in the first announcement or document published during the offer period by the offeree company/securities exchange offeror which refers to that valuation.
  • Valuer: Rule 29.3 states that the valuer must be considered by the Panel to be independent, be appropriately qualified and have sufficient current market knowledge and the necessary skills and understanding to prepare the report.
  • Valuation report: In terms of the report, the final form Rule 29.4(b) sets out various content requirements and makes it clear that the report must not be qualified or subject to special assumptions (namely assumptions that assume facts that differ from the actual facts existing at the valuation date or which would not be made by a typical market participant in a transaction on the date of the valuation), except with Panel consent or where an assumption is required (under Note 3(a)) concerning development land.
  • No material difference statement: New Rule 29.5 now requires that if the asset valuation date is not the same as the date of the document or announcement in which the valuation report is to be published, that document/announcement must include a statement by the directors that the valuer has confirmed that an updated valuation would not be materially different (failing which, an updated valuation would have to be published).
  • Potential tax liability: Except with Panel consent, any document or announcement which publishes a valuation report must include a directors' estimate of any potential tax liability which would arise if the assets were to be sold in line with the valuation, together with a comment as to the likelihood of any such liability crystallising.  Where Panel consent has been obtained, the document or announcement must still explain why an estimate cannot be given, and describe the tax consequences of a sale of the assets.
  • Profit forecasts: The Panel must be consulted in advance if publication of information in a valuation report might constitute a profit forecast (new Rule 29.7).
  • Valuation of another party's assets: A party to an offer will not normally be permitted to publish a valuation of assets of another party to an offer unless it is supported by an unqualified valuation report prepared in accordance with the Rule 29 requirements.

The Takeover Panel Response statement 2018/1: Asset valuations

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