In one of the more expected occurrences of 2007, Grant Samuel, the independent expert given the task of valuing the Coles Group, has determined (in a draft independent expert’s report) that the company is worth between $16.21 and $18.23 per share. Conveniently, the valuation range shows that Coles directors were vindicated in their decision to rejected KKR’s $15.25 all-cash offer last November.

Conspiracy theorists will note that the independent expert managed to come up with a range which suited the Coles directors perfectly – not too high that their acceptance of Wesfarmers’ offer is wrong, but not too low that they look like geese for rejecting KKR’s earlier offer. Who chooses independent experts? Oh yeah, that would be the directors.

That is not to suggest that Grant Samuel did anything untoward. If anything, Grant Samuel is probably regarded as the most independent and most expert of all independent experts (GIO fiasco aside). Rather, the whole notion of an independent expert, paid for and chosen by the company being valued is a bizarre one. As Crikey pointed out several months ago, the independent expert valuing fellow takeover target, Consolidated Minerals, managed to come up with a value which neatly fitted in with the directors’ recommendation. Strangely enough, six months on, and ConsMin shares are now almost double what that expert said they were worth. Grant Samuel’s full report will be produced with the Coles scheme booklet in around one month, so a better analysis can be undertaken then. However, Grant Samuel seems to be placing an extremely lofty control premium on Coles, given that most pundits agree that if Wesfarmers were to pull their bid, Coles shares will drop to around the $10 or $11 mark and there isn’t another bidder in sight. The market, which is made up of hundreds of thousands of “independent experts” is constantly placing a value on every company. While the market is certainly not always correct, it serves as a useful and independent proxy as to the value of a company. It is clear here that the market and the independent expert are not of one mind.

While the “expert” nature of an independent expert’s report needs to be taken at face value, the impression of independence can certainly be improved. As has Crikey suggested, instead of the target company selecting and paying the independent expert, they should be chosen by an independent body (perhaps even by a part of the Takeovers Panel). Thus, erasing any impression (whether accurate or not), that the independent expert is beholden to the company paying the bills.


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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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