7. What kind of information on the justification of the exchange ratio must be reported in the legal reports?

The passage in the report (see FAQ 3) which the management body devotes to the exchange ratio is of great importance. The exchange ratio determines how many shares of the company resulting from the business combination the shareholders of the existing company/companies will receive, per share held in that company/those companies. The share exchange ratio is based on a valuation of the companies involved in the business combination. It is decisive for the future power relations between the shareholders in the company(ies) resulting from the business company.

In order to enable the shareholders to form a well-founded judgment on the valuations of the assets and liabilities in question and to assess the fairness of the exchange ratio, the FSMA considers that the most important hypotheses on which the valuations are based must be reported in quantitative form.

Competition sensitivity is often invoked as a counterargument against providing quantitative information. The challenge is thus to find a balance between the obligation to provide meaningful information to shareholders, on the one hand, and on the other hand, the need to protect the competitiveness of the companies involved in the operation. The FSMA considers that the most important hypotheses used for the valuation must be mentioned at least in general terms. In a number of cases, a solution may be to provide information, for example, in the form of a composite annual growth rate and/or an average over the budgeted period. Furthermore, important deviations from the hypotheses used in the past or from the consensus of the analysts must be justified.

Finally, the FSMA considers that the shareholders must be informed, via the reports of the management body, of the parameters that affect the principal valuation hypotheses and of their extent (sensitivity analysis).