On 21 September the Takeovers Panel issued Guidance Note 22: "Recommendations and Undervalue Statements". This followed consultation on a draft guidance note in April this year, and response statement in September.
The need for guidance was triggered by the Panel's decisions in Origin Energy and Tully Sugar.
In essence, the Panel's guidance is that a statement that says or implies that an offer is undervalued must be based on reasonable grounds, with the reasons for the recommendation clearly disclosed (either at the time of the statement or at least no later than in the target's statement). This should not be seen as controversial, but there have been examples of undervalue statements made without any visible means of support.
The Panel does not expect target directors to put an upper limit on value, or even necessarily state a value, but an undervalue statement does suggest that the directors have made an assessment of the value of the target - and for a scrip bid the value of the bidder.
One interesting point seems to be that the Panel will look at whether a director is acting "in good faith" (paragraph 12(b)), something of a departure of the Panel's focus on the effect of circumstances, and perhaps hints at a suggestion that the Panel will consider compliance with directors' duties. However, the Panel goes on to say that what it means is that unacceptable circumstances may arise if an undervalue statement was made where the director did not honestly and reasonably hold that view. Expressed this way, the proposition is entirely orthodox and does not flag a foray into directors' duties at all.
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