Kuala Lumpur, 25 September 2012

SC issues guidance on enhanced disclosures for independent advice circulars

The Securities Commission Malaysia (SC) today issued an expanded Practice Note addressing the requirements on independent advice circulars for take-over offers.

The enhancements, to take effect on 1 November 2012, are pursuant to a Consultation Paper on the subject issued in 2010. The SC had received positive feedback on the Consultation Paper with some responses on implementation consideration. Since then, the SC has worked with stakeholders to ensure that the enhanced requirementswill be implemented seamlessly. The expanded requirements will provide shareholders who are subject to a take-over offer with clearer and more comprehensive advice to enable them to make informed decisions.

Under the enhanced Practice Note, advisers are required to consider ‘fair and reasonable’ as two discrete terms in making a recommendation on an offer. For an offer to be ‘fair’, the offer price must be at least equal to or greater than the value of the securities that are the subject of the take-over offer. Advisers should also take into consideration all relevant factors in evaluating whether an offer is ‘reasonable’ including the ability of the offeror to pass special resolutions, liquidity of the offeree securities, and other qualitative considerations. The decoupling of the terms will further ensure that independent advice circulars are more easily understood, transparent and provide clear bases to justify a recommendation.

The Practice Note also requires advisers to select the most appropriate valuation methodology for the relevant securities and provides guidance on various types of valuation methodologies that may be considered. Advisers are also required to base their opinion on reasonable assumptions, to disclose all material assumptions on which a recommendation is based and to ensure that they have a reasonable basis to rely on information used in forming an opinion on the offer.

The Public Response Papers and Consultation Paper, together with further details on the expanded Practice Note are available here.