| Example Fairness Opinions |
SEC filings relating tothe 2009 merger ofMerck & Co., Inc. andSchering-Plough Corporation: |
Afairness opinion is aprofessionalevaluation by aninvestment bank or other third party as to whether the terms of amerger,acquisition,buyback,spin-off, orprivatization arefair.[1] It is rendered for afee.[2][3] They are typically issued when a public company is being sold, merged or divested of all or a substantial division of their business. They can also be required in private transactions not involving a company that is traded on a public exchange,[4] as well as in circumstances other than mergers, such as a corporation exchanging debt for equity.[5] Some of the specific functions of a fairness opinion are to aid in decision-making, mitigate risk, and enhance communication.[6]
Controversy infinancial andmanagement circles surrounds the question of the objectivity of fairness opinions, as one aspect of theduty of care in thefairness of atransaction. A potential exists for aconflict of interest when an entity rendering an opinion may benefit from the transaction either directly or indirectly.[7]Directors andofficers of the companies also may have an interest in the outcome of the proposed transaction.[8] In response, in the United States, theFinancial Industry Regulatory Authority (then the National Association of Securities Dealers) issued its Rule 2290 to require disclosure by its members to minimize abuses;[9] this was approved in 2007 by theSecurities and Exchange Commission.[10]
In the United States, in the context ofstockholderlawsuits,[11] typically relating to the sale or merger of a public company, theDelaware Court of Chancery has required sufficient disclosures be made to a board of directors and shareholders to “provide a balanced, truthful account of all matters”[12] and said “When a document ventures into certain subjects, it must do so in a manner that is materially complete and unbiased by the omission of material facts.”[13] In aMemorandum Opinion in the CheckFree/Fiserv merger Chancellor Chandler underlined that the earlierIn re Pure Resources Court had established the proper frame of analysis for disclosure of financial data: “[S]tockholders are entitled to a fair summary of the substantive work performed by the investment bankers upon whose advice the recommendations of their board as to how to vote on a merger or tender rely.”[14] According to the certification hypothesis fairness opinions may also serve the interest of the shareholders by mitigating informational asymmetries in corporate transactions.[15]
