Independent expert report

Getting a second opinion

If you own shares, units or other investments in a company or trust, you may receive an independent expert report when the company is considering a range of transactions.

It's important you read and understand the report as it will help you make an informed decision about your investments.

What's in an independent expert report

An independent expert report provides shareholders with unbiased advice on the pros and cons of a potential transaction. Independent expert reports may be used for:

The report will evaluate and assess the fairness of the planned transaction and the implications of it proceeding or not proceeding.

In particular, it is important that you receive independent advice about transactions involving related parties or parties of influence because of the potential for conflicts of interest.

An independent expert report usually includes:

  • A summary of the proposed transaction
  • An analysis of the entities involved and associated businesses
  • A summary of the industries in which the relevant entities' businesses operate
  • The trading history of the entities involved
  • A summary of the benefits and disadvantages of the transaction
  • A valuation of the securities involved in the transaction, if relevant, (e.g. shares, units or other investments)
  • A comparison between the value of the securities and what you are being offered as an investor
  • The expert's opinion, the basis of their opinion and the method and assumptions used to reach their conclusions

Some companies may choose to commission an independent expert report even if they are not legally required to.

Who can write an independent expert report

An independent expert report is usually written by an accounting or financial advice firm experienced in both valuations and corporate transactions.

Reports usually provide financial product advice, so the expert who writes the report must hold an Australian financial services (AFS) licence.

To avoid bias, the expert must be independent of the parties with interests in the transaction.

A specialist may also be consulted if additional advice is needed on technical matters. For example, a geologist may be asked to provide an opinion on how much ore is likely to be found in a mining tenement

Understanding the report's assessment

Experts need to express their opinions using certain terms depending upon the type of transaction being assessed.

For example, they need to say:

  • Whether a takeover bid is 'fair and reasonable'
  • Whether a scheme of arrangement is in 'the best interests of the members of the company'
  • Whether the proposed terms in a buy-out or acquisition notice give 'fair value'

While the language of the opinion may differ between independent expert reports, all reports will consider if the transaction is 'fair' and if the transaction is 'reasonable'.

What is a 'fair' transaction? 

A transaction is considered 'fair' if the value of what you are being offered (cash, shares or a combination of both) is equal to or greater than the value of the shares the company gains (and you give up) as a result of the transaction.

If the expert thinks that the value of what is being offered is less, the report will note that the transaction is 'not fair'.

What is a 'reasonable' transaction?

If a transaction is considered 'fair', it is also considered to be 'reasonable'. However, if an expert considers a transaction to be 'not fair', they will look at other factors beyond value to determine whether it is 'reasonable'. These factors may still make the transaction beneficial to shareholders.

For example, in a takeover bid the share price offered may be considered 'not fair'. However an expert may consider the bid to be 'reasonable' because there are unlikely to be any alternative bidders and the share price may fall if the takeover bid is unsuccessful.

If you don't agree with the expert's findings

If you don't agree with the expert's finding you have different options depending on the kind of transaction involved.

For example, you can vote against a proposed scheme of arrangement, decline to accept an offer under a takeover bid, or object to a notice of compulsory acquisition.

You should also contact the expert who wrote the report and let them know about your concerns.

You can also lodge a complaint with ASIC .

As a shareholder, it's important to keep track of things that may affect the value of your investments. Independent expert reports will help you make an informed decision about proposed transactions involving your investments. 

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Last updated: 11 Dec 2018