CODEWORD

The Panel was required to appoint an independent expert for the purposes of rule 57 of the Code for the first time in March 2004.

The independent expert was appointed in respect of the compulsory acquisition of shares in Shotover Jet Limited by Ngai Tahu Holdings Corporation Limited.

An independent expert was required because Ngai Tahu received written objections to the consideration specified in its compulsory acquisition notice from outstanding shareholders who together held more than 10% of the outstanding voting rights.

Shareholders could object to the compulsory acquisition price because Ngai Tahu had become the dominant owner of Shotover as a result of a takeover offer in respect of which it received acceptances of less than 50% of the shares under offer.

The role of an independent expert is to determine the fair and reasonable value of an equity security. The amount determined by the expert is the amount the dominant owner must pay to outstanding security holders. It may be higher than, equal to, or lower than, the acquisition price specified by the dominant owner in the acquisition notice.

The Panel sought expressions of interest in the appointment. Six candidates applied.

The Panel needed to be satisfied that the candidate appointed was qualified and experienced to be an independent expert and was independent of both Ngai Tahu and Shotover Jet.

In considering the qualifications and experience that would be appropriate, the Panel noted that the role of independent expert under rule 57 is different from that undertaken by an independent adviser for the purposes of rule 21 where the independent adviser reports on the merits of the transaction. Under rule 57, the independent expert is only required to determine a cash sum equal to the fair and reasonable value of the securities to be compulsorily acquired. It does not need to report on the merits.

To select the most suitable candidate the Panel considered:

• the independence and qualifications of each applicant; and
• the level of fees each applicant would charge for the assignment.

The Panel appointed Horwath Porter Wigglesworth Limited on 16 March 2004 to determine the value of Shotover Jet, in compliance with the relevant provisions of the Code and in accordance with highest professional standards expected of an independent expert. It was left to Horwath Porter Wigglesworth to deal directly with Shotover Jet on the valuation process and related matters, such as confidentiality.

Some of the candidates told the Panel the specific methodology they would adopt to reach their determination if they were appointed. However, the methodology which a person might use to determine the value of the shares was not a factor in the Panel’s decision-making. The Code requires that the independent expert calculate the value of a share by assessing the value of all of the equity securities in the class and then allocating that value pro rata among all of the securities of that class. However, it does not prescribe the specific methodology that the expert should adopt. The expert must decide the value of the share using a methodology which it considers appropriate.

Horwath Porter Wigglesworth sent its determination to Ngai Tahu on 13 April 2004. Ngai Tahu was required to send a copy of the determination to the Panel and the NZX immediately after it received the determination.

The value determined by Horwath Porter Wigglesworth was higher than the consideration specified in Ngai Tahu’s compulsory acquisition notice. Accordingly, all outstanding shareholders were paid a “top-up” of the difference between the amount specified in the compulsory acquisition notice and the value of each Shotover Jet share determined by the expert.

The costs of the expert determination were required to be paid by Ngai Tahu, regardless of the outcome.