Fairness opinion
From Wikipedia, the free encyclopedia
A fairness opinion is a professional evaluation by an investment bank or other third party as to whether the terms of a merger, acquisition, buyback, spinoff, or going private are fair. It is rendered for a fee.[1][2]
[edit] Controversy
Controversy in financial and management circles surrounds the question of the objectivity of fairness opinions, as one aspect of the duty of care in the fairness of a transaction. A potential exists for a conflict of interest when an entity rendering an opinion may benefit from the transaction either directly or indirectly[3]. Directors and officers of the companies also may have an interest in the outcome of the proposed transaction. In response, the Financial Industry Regulatory Authority (formerly the National Association of Securities Dealers) issued its Rule 2290 to require disclosure by its members to minimize abuses[4]; this was approved by the Securities and Exchange Commission[5].
[edit] Equity and fairness
Stockholder lawsuits are in the courts[6]. The Delaware Court of Chancery has required sufficient disclosures to “provide a balanced, truthful account of all matters”[7] 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.”[8] In a Memorandum Opinion in the CheckFree/Fiserv merger Chancellor Chandler underlined that the earlier In 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.”[9]
[edit] References
- ^ "Definition, Fairness Opinion", Investorwords.com.
- ^ Ralph Ward, "A Briefing On Fairness Opinions", Inc.com (February 2001).
- ^ Marie Leone, "Fairness Opinion Neutrality Questioned", CFO.com (February 2, 2006).
- ^ Cahill Gordon & Reindel, "FINRA Rule 2290: Required Disclosures in Fairness Opinions" (November 6, 2007)
- ^ "Fairness Opinions: SEC Approves New NASD Rule 2290 Regarding Fairness Opinions", FINRA Regulatory Notice 07-54. Effective Date: December 8, 2007.
- ^ Steven M. Davidoff, "Fairness Opinions", American University Law Review, v. 55, p. 1557.
- ^ Malone v. Brincat, 722 A.2d 5, 12 (Del. 1998)
- ^ In re Pure Resources, Inc. S’holders Litig., 808 A.2d 421 (Del. Ch. 2002), pp. 447-8.
- ^ In re CheckFree Corp. S’holders Litig., C.A. No. 3193-CC (Del. Ch. Oct. 18, 2007), Memorandum Opinion, Consolidated Civil Action No. 3193-CC (November 1, 2007).
