M&A Fairness Opinions and Projections in Financial Disclosure Summaries

This CLE course will provide M&A counsel with a review of fairness opinions and projections in financial disclosure summaries, including best practices regarding disclosure of management's projections and financial advisers' potential conflicts, the "fair summary" requirement for bankers' analyses, and the methods and data forming the basis of fairness opinions.

Fairness opinions may be used in M&As, recapitalizations or reorganizations, buybacks, spin-offs, leveraged buy-outs, sales without competing offers, going private transactions, private investments in public equity, investments by private equity or venture capital funds in portfolio companies, conversions of companies from nonprofit to for-profit, and many other transactions. In the M&A context, a fairness opinion is a critical aspect of the transaction.

Fairness opinions arise from the business judgment rule—a standard requiring corporate directors to make informed decisions, in good faith, in shareholders' best interest, without fraud and free from self-dealing. Boards generally request fairness opinions in connection with the consideration of a proposed transaction to establish that the standard for the duty of care was met. A fairness opinion may also be relied on by boards to defend against claims brought by dissenting or minority shareholders. Given the significant reliance placed upon fairness opinions, it is important that practitioners understand the methodology and data that opinions rest upon and to ensure they are drafted with care.

The fairness opinion is a short document, but the supporting work behind it is substantial. A well-developed fairness opinion will be based on past financial performance and factors that could impact earnings, pricing of similar transactions, a review of the investment characteristics of the consideration to be received, and a review of the merger agreement and its terms. A frequently disputed issue in a fairness opinion is the sufficiency of the detail forming the basis of a fairness opinion. The opinion must therefore provide the underlying financial analysis as well as management's internal financial projections.

In addressing shareholder actions, Delaware courts have often focused on specifics in fairness opinions and the financial adviser's potential conflicts and incentives. Counsel must be aware of the ongoing developments concerning methods and data used in fairness opinions, as well as the key aspects of the opinion, required disclosures, intended uses, due diligence considerations, scope, and more. 

Listen as our authoritative panel discusses M&A fairness opinions and projections in financial disclosure summaries. The panel will also outline best practices for obtaining and reviewing fairness opinions and important case law discussions that should inform deal strategies.