KROLLs comment in their Independent Expert's Opinion, sounded weird:
3.2 Summary of opinion
In our opinion, we consider the Scheme, considering the implications of the Transaction as a whole, is in the best interests of Allkem Shareholders, in the absence of a superior proposal. As the Transaction does not result in a change of control for Allkem Shareholders, we have assessed whether the Scheme is in the best interests of Allkem Shareholders by considering whether Allkem Shareholders as a whole are, on balance, better off, or at least not worse off, if the Transaction proceeds than if it does not.
Kroll did not use the term 'fair and reasonable'. The importance of this will become clear further down! I went looking what terminolgy KROLL usually uses to assess a mergers and what guidance ASIC provides.
From KROLL's Independent Expert's Opinion of the Pendal Scheme (2022/23):
3.2 Summary of opinion
In our opinion, the Scheme is in the best interests of Pendal Shareholders, in the absence of a superior proposal. In arriving at this opinion, we have assessed whether the Scheme is:
▪ fair, by comparing the value of the Scheme Consideration on a minority interest basis to our
assessed equity value of Pendal on a controlling interest basis. This approach is in accordance with the guidance set out in RG 111; and
▪ reasonable, by assessing the implications of the Scheme for Pendal Shareholders, the alternatives
to the Scheme that are available to Pendal, and the consequences for Pendal Shareholders of not approving the Scheme.
What are ASIC's guidelines on the Independent Expert's Opinion?
Guidance is provided by ASIC in its Regulatory Guides in particular, RG 111, which outlines the principles and matters which it expects a person preparing an independent expert’s report to consider when providing an opinion on whether a scheme of arrangement is in the best interests ofshareholders. RG 111 distinguishes between the analysis required for control transactions and other transactions.
RG 111.18 states that where a scheme of arrangement is used as an alternative to a takeover bid, the form of analysis undertaken by the expert should be substantially the same as for a takeover bid. That form of analysis considers whether the transaction is ‘fair and reasonable’ and, as such, incorporates issues as to value. In relation to control transactions.
RG 111.10-12 states:
▪ ‘fair and reasonable’ is not regarded as a compound phrase;
▪ an offer is ‘fair’ if the value of the offer price or consideration is equal to or greater than the value of the securities subject to the offer;
▪ the comparison should be made assuming 100% ownership of the ‘target’ and irrespective of whether the consideration is scrip or cash;
▪ the expert should not consider the percentage holding of the ‘bidder’ or its associates in the target when making this comparison; and
▪ an offer is ‘reasonable’ if it is ‘fair’. An offer might be ‘reasonable’ if, despite being ‘not fair’, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid before the close of the offer.
RG 111.13 sets out the factors an expert might consider in assessing whether an offer is reasonable:
▪ the bidder’s pre-existing voting power in securities in the target;
▪ other significant security holding blocks in the target;
▪ the liquidity of the market in the target’s securities;
▪ taxation losses, cash flow or other benefits through achieving 100% ownership of the target;
▪ any special value of the target to the bidder, such as particular technology, etc;
▪ the likely market price if the offer is unsuccessful; and
▪ the value to an alternative bidder and likelihood of an alternative offer being made.
RG 111.20 states that if an expert would conclude that a proposal was ‘fair and reasonable’ if it was in the form of a takeover bid, it will also be able to conclude that the scheme is ‘in the best interests’ of members.
RG 111.21 states that if an expert would conclude that a proposal was ‘not fair but reasonable’ if it was in the form of a takeover bid, it is still open to the expert to also conclude that the scheme is ‘in the best interests’ of the members of the company.
RG 111.11 provides that an offer is fair if the value of the consideration is equal to or greater than the value of the securities subject to the offer. This comparison can be made assuming 100% ownership of the ‘target’ and irrespective of whether the consideration is scrip or cash and without regard to the percentage holding of the bidder or its associates in the target entity.
That is, RG 111.11 requires the value of the target to be assessed as if the bidder was acquiring 100% of the issued equity (i.e. on a controlling interest basis). In addition, any special value of the ‘target’ to a particular ‘bidder’ (e.g. synergies that are not available to other bidders) should not be taken into account under the comparison.
KROLL says regarding RG 111.11 and their valuation of potential synergies:
Accordingly, when assessing the full underlying value of Pendal, we have considered those synergies and benefits which would be available to more than one potential purchaser (or a pool of potential purchasers) of Pendal. As such, we have not included the value of special benefits that may be unique to Perpetual and any special benefits have been considered separately.
In summary, even though KROLL assessed the merger of Livent and AKE under the guidelines of 'fair and reasonable' set out by ASIC, they did not state once in the entire document that the merger is 'fair and reasonable'.
Instead, they made selective fairness statements on some aspects of the merger but not to the entire transaction per se.
In comparison, KROLL used the term 'fair and reasonable' in accordance with ASIC guidance 11 times in their Pendal report?
My question to KROLL and AKE:
Is the merger 'fair and reasonable' with respect to the guidelines set out by ASIC RG111?
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