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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, spin-off, or going private are fair.[1] It is rendered for a fee.[2][3]

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[4]. Directors and officers of the companies also may have an interest in the outcome of the proposed transaction[5]. 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[6]; this was approved in 2007 by the Securities and Exchange Commission[7].

Equity and fairness

Stockholder lawsuits are in the courts[8]. The Delaware Court of Chancery has required sufficient disclosures to “provide a balanced, truthful account of all matters”[9] 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.”[10] 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.”[11] According to the certification hypothesis fairness opinions may also serve the interest of the shareholders by mitigating informational asymmetries in corporate transactions. [12] First empirical evidence of fairness opinions in Europe indicates their relevance for shareholders [13].

References

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