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
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
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
An independent expert report usually includes:
- A summary of the proposed transaction
- An analysis of the entities involved and associated
- A summary of the industries in which the relevant entities'
- The trading history of the entities involved
- A summary of the benefits and disadvantages of the
- 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
An independent expert report is usually written by an accounting
or financial advice firm experienced in both valuations and
Reports usually provide financial product advice, so the expert
who writes the report must hold an Australian financial services (AFS)
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
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
If you don't agree with the
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.
Last updated: 10 Nov 2017