A fairness opinion is a

professional A professional is a member of a profession or any person who work (human activity), works in a specified professional activity. The term also describes the standards of education and training that prepare members of the profession with the partic ...

evaluation In common usage, evaluation is a systematic determination and assessment of a subject's merit, worth and significance, using criteria governed by a set of Standardization, standards. It can assist an organization, program, design, project or any o ...

by an

investment bank Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

or other third party as to whether the terms of a

merger Mergers and acquisitions (M&A) are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another entity. They may happen through direct absorpt ...

, acquisition, buyback, spin-off, or

privatization Privatization (rendered privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation w ...

are

fair A fair (archaic: faire or fayre) is a gathering of people for a variety of entertainment or commercial activities. Fairs are typically temporary with scheduled times lasting from an afternoon to several weeks. Fairs showcase a wide range of go ...

. It is rendered for a fee. 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, as well as in circumstances other than mergers, such as a corporation exchanging debt for equity. Some of the specific functions of a fairness opinion are to aid in decision-making, mitigate risk, and enhance communication.

Controversy

Controversy in

financial Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

and

management Management (or managing) is the administration of organizations, whether businesses, nonprofit organizations, or a Government agency, government bodies through business administration, Nonprofit studies, nonprofit management, or the political s ...

circles surrounds the question of the objectivity of fairness opinions, as one aspect of the

duty of care In Tort, tort law, a duty of care is a legal Law of obligations, obligation that is imposed on an individual, requiring adherence to a standard of care, standard of Reasonable person, reasonable care to avoid careless acts that could foreseeab ...

in the fairness of a transaction. A potential exists for a

conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple wikt:interest#Noun, interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates t ...

when an entity rendering an opinion may benefit from the transaction either directly or indirectly. Directors and officers of the companies also may have an interest in the outcome of the proposed transaction. In response, in the United States, the

Financial Industry Regulatory Authority The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Associati ...

(then the National Association of Securities Dealers) issued its Rule 2290 to require disclosure by its members to minimize abuses; this was approved in 2007 by the

Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...

Equity and fairness

In the United States, in the context of stockholder lawsuits, typically relating to the sale or merger of a public company, the

Delaware Court of Chancery The Delaware Court of Chancery is a court of equity in the U.S. state of Delaware. It is one of Delaware's three constitutional courts, along with the Supreme Court and Superior Court. Since 2018, the court consists of seven judges. The cour ...

has required sufficient disclosures be made to a board of directors and shareholders to “provide a balanced, truthful account of all matters” 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.” In a Memorandum Opinion in the CheckFree/

Fiserv Fiserv, Inc. ( ) is an American multinational corporation, multinational financial technology company headquartered in Milwaukee, Wisconsin. Fiserv provides financial technology and services to clients across the financial services sector, incl ...

merger Chancellor Chandler underlined that the earlier ''In re Pure Resources'' Court had established the proper frame of analysis for disclosure of financial data: “ ockholders 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.” According to the certification hypothesis fairness opinions may also serve the interest of the shareholders by mitigating informational asymmetries in corporate transactions.Pierfrancesco LaMura, Marc Steffen Rapp, Bernhard Schwetzler, Andreas Wilms, “The Certification Hypothesis of Fairness Opinions”, 2009)
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References

{{DEFAULTSORT:Fairness Opinion Mergers and acquisitions