PSE proposes to broaden scope of valuation reports

The Philippine Stock Exchange (PSE) has proposed to expand the scope of its guidelines for fairness opinions and valuation reports.

There have been several occasions involving voluntary applications in which minority stockholders of the applicant company complained of undervaluation of shares for purposes of the tender offer, the PSE said in its proposed amendment.

“The common perception is that the valuation provider uses valuation methodologies and assumptions that are favorable to the listed company,” the PSE said in its proposed amendments to the existing guidelines.

Thus, the PSE said in order to assure the investing public and stakeholders of the independence and impartiality of the valuation provider which will render the fairness opinion, the issuer shall nominate and submit to the PSE three accredited valuation providers of its choice to render the fairness opinion.

The PSE shall then select and engage the valuation provider from the list of providers submitted by the issuer. The cost of the provider’s services shall be for the account of the issuer.

“The proposed amendment balances the interests of the issuer and its minority shareholders by ensuring that the choice of methodologies and assumptions are fair and reasonable from the perspective of all stakeholders,” the PSE added.

Thus, the PSE said, the proposed Guidelines for Fairness Opinions and Valuation Reports are applicable to listing applications covering listing by way of introduction, mergers and non-cash transactions such as share-for-share swaps, debt-to-equity conversions, property for share swaps and other similar transactions and tender offers relating to delisting proceedings.

The fairness opinion and valuation reports on the shares must be issued by an independent firm which includes investment banks, financial advisory firms and accounting firms.

They must be duly registered or licensed by the Securities and Exchange Commission and accredited by the PSE.

PSE president and CEO Ramon Monzon said the changes are meant to erase any doubts among minority shareholders.

A tender offer occurs when an investor proposed to buy shares from every shareholder of a publicly traded company for a certain price at a certain time.

The investor normally offers a higher price per share than the company’s stock price, which is determined by a third party fairness opinion provider.

However, in the past shareholders have complained about the low price offered by those doing the tender offer.