The Undervalue Trap: Why Disclosure, Not Valuation, Is The Real Test For Target Boards

When a target board tells shareholders that a takeover offer materially undervalues the company, it is doing more than recommending rejection of the offer. It is asking shareholders to accept that the board has undertaken an evaluative process capable of supporting that conclusion. Australian takeover law does not require that process to produce a number or an independent valuation. It does require the board to explain its reasoning sufficiently for shareholders to assess it.

That requirement reflects the architecture of Chapter 6. Section 602(b)(iii) requires shareholders to receive enough information to assess the merits of a proposal. Section 638 gives that principle practical effect in the target's statement. Alongside both sits the prohibition on misleading or deceptive conduct. ⁠Guidance Note 22: Recommendations and Undervalue Statements is best understood as giving practical expression to those overlapping principles. When a board says a bid undervalues the company, the real