* The regulator has concerns over the independence and objectivity of advice.
* Investors use such reports to make investment decisions.
* But some valuers say delays in such reports can increase fees or derail takeovers.
ASIC scrutiny hitting deals: valuers
www.afr.com
Monday 23 May 2011
Patrick Durkin
The corporate regulators crackdown on independent valuations used to assess deals is delaying and in some cases derailing major transactions, say accountants and investment bankers.
The Australian Securities and Investments Commission has followed through on its threat to pursue companies and their independent experts over concerns that valuations used during takeover bids, particularly for miming exploration companies, may not stack up.
The warning followed a year long ASIC industry review, which found examples where expert valuers were hired despite significant concerns about their independence. The review uncovered serious deficiencies in methods used by some experts to value companies.
ASIC had previously warned of its concern about concentration in the industry that provides expert valuations, which are used to help shareholders decide whether to accept takeover offers. The industry consists of the big four accounting firms, four or five mid-tier firms, investment bank Grant Samuel and boutique firms including Lonergan Edwards.
Given that reports are commissioned by directors or executives of the companies inviting bids, some investors question their objectivity.
"We do sometimes still see reports that do not meet our minimum standards," ASIC Commissioner Belinda Gibson said. "When we see such reports we step in - independent expert reports are too important to let deficient ones go to investors."
The major firms say they warned the regulator during its review that too much scrutiny could sideline major deals and that is happening.
A corporate advisory partner at accounting firm PKF, Fiona Hansen, said documentation for shareholders was being delayed "by weeks and sometimes months, in some cases significantly increasing the fees for participating businesses." She added: "When preparing the documentation for a takeover transaction, a delay of several weeks could well see one party involved walk away from the transaction altogether."
She cited the example of a listed mining company that appointed an expert to provide a report. After ASIC scrutinised it, the advise was significantly altered which caused a substantial delay, forcing the company to appoint another expert.
Though ASIC intervention might lead to better quality reports, the tougher requirements were providing challenging she said.
"Undertaking valuations is an art rather than a pure science as they involve judgment and analysis, and the size and scope of takeover transactions are broad. ASIC's revised approach has removed an element of judgement from experts, upsetting the balance."
Similar warnings were made by advisers in submissions to the regulator during its review late last year, including one from accounting firm Deloitte. "We are cautious about ASIC limiting the expert's use of judgement ... certain aspects of a valuation analysis do not lend themselves to precise quantifications and are necessarily reliant on the skill and expertise of the valuer in applying his or her professional judgement," Deloitte said.
Grant Samuel also said that ASIC was wrongly assessing the expert's report as if it wee an audit.
"To force analysis into a straitjacket runs a serious risk of producing reports that are unhelpful, if not misleading for shareholders," Grant Samuel said, and would not lead to "better reports".
The ASIC move is part of a campaign to raise the standard of corporate disclosure and help shareholders make more informed decisions about their investments. It follows similar warning to directors and executives about related party transactions after a spate of controversial deals and corporate collapses, such as those of Babcock & Brown, Allco Finance Group, ABC Learning Centres and Great Southern.
