Keeping Faith With Your Investment Banker

By: H.H. Sean Wee
– Directors & Boards

Fairness opinions are a long-established fixture of the public M&A deal process. Smith v. Van Gorkum, the landmark case in Delaware corporate law that sparked the proliferation of fairness opinions, requires that a board of directors receive "adequate information regarding the intrinsic value of the [c]ompany" in a change of control transaction. Therefore, before the board of a public company target approves a sale of the company, the board will receive a fairness opinion from an investment bank or other financial advisor stating that the sale price is fair from a financial point of view to the shareholders. However, although customary, fairness opinions have detractors among both M&A commentators and practitioners. These detractors deride fairness opinions as rubber stamps undermined by alleged conflicts of interest stemming from the way financial advisor compensation is structured and a surreptitious desire to gain the favor of a buyer that may be a once and future client. In an infamous allusion to the Peanuts comics strip during a 2007 hearing before the Delaware Court of Chancery, fairness opinion providers have been compared to "the Lucy sitting in the box: 'Fairness Opinions, 5 cents.'"

Read the article here



pursuant to New York DR 2-101(f)

© 2021 Manatt, Phelps & Phillips, LLP.

All rights reserved