An Independent Expert’s Report (IER) provides impartial advice to shareholders on the fairness and/or reasonableness of a transaction. A company may be required to obtain an IER under the Corporations Act 2001 (Corporations Act) where they propose to enter into a transaction that may involve a potential conflict of interest for one or more directors of the company or where a transaction may result in a shareholder exceeding 20% of the issued capital. The Corporations Act requires the IER to inform shareholders not associated with the transaction. Even where not required under the Corporations Act, companies often voluntarily commission an IER to provide an independent view on a transaction for shareholders.
An IER provides an opinion as to whether a transaction is fair and reasonable, not fair but reasonable, or neither fair nor reasonable to non-associated shareholders.
A transaction that is fair to the shareholders to whom the report is addressed, is one where the value of the acquisition consideration is greater than the value of the securities being offered by the company for the acquisition. If a transaction is fair, it is by definition, reasonable.
An offer that is not fair may be considered reasonable through the consideration of other reasons why shareholders should accept the offer. Depending on the nature of the transaction, these reasons may include (but are not limited to), the value of or absence of any other offers, synergies with the other transacting entity, liquidity of the market or the voting power of transacting entity and any exercise of control issues.
Some examples of transactions where an IER may be required include:
1. Related party transactions
a. Takeover whereby the bidder has a greater than 30% interest in the target or bidder and target have one or more common directors
b. An asset worth >5% of a listed entity’s equity book value is being sold to or acquired from a related party
c. Giving a financial benefit to a related party
2. Other Transactions
a. Issuing or transferring of securities where the acquirer’s interest moves from below to above 20% or between 20% and 90% (with no exception existing)
b. Compulsory acquisition of another company’s securities due to the 90% ownership threshold being reached
c. Selective capital reduction
3. Directors requesting an IER to assist in their response to a takeover offer.
Hall Chadwick provides valuation and Independent Expert’s Report services to a range of ASX listed companies. Our team can provide you with the right advice that ensures that directors and advisors can appropriately discharge their responsibilities to shareholders.
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