A fairness opinion provides a balanced and independent opinion as to whether or not the proposed offer price to the target firm is fair. The opinions are written by qualified analysts or advisors often usually of an investment bank or specialist boutique. The report evaluates the facts and details of the acquisition in return for a fee. In addition, the service also increases the prestige of the offering institution.
Specific areas covered by the analysis may include (but not limited to
- business synergies that benefit the target/seller if applicable
- the terms of the agreement
- price offered
Fairness opinions are not always required in transactions involving public companies. However, they are helpful in reducing the risk associated with a merger including the risk of litigation. Such as dissident stockholders claiming the deal had undervalued the company. Fairness opinions are also a useful tool if the transaction is a hostile takeover or if there are multiple offers for the company at different prices. In these instances the opinion can strengthen the hand of the acquirer and help convince the board the offer is a fair one.
If company insiders are involved in the transaction the opinion can help the board achieve its fiduciary duty by having an independent assessment or if the board members or shareholders have concerns about the fairness of the transaction. Additionally, they can also be a good way to facilitate communication between the various involved parties.
Example Fairness Opinion
The following quote is from the PREM14A filing by Wright Medical (WMGI) made on February 21, 2020. The letter addressed to the board is from Guggenheim Securities who wrote the fairness opinion
Our opinion has been authorized for issuance by the Fairness Opinion and Valuation Committee of Guggenheim Securities. Our opinion is subject to the assumptions, limitations, qualifications and other conditions contained herein and is necessarily based on economic, capital markets and other conditions, and the information made available to us, as of the date hereof. We assume no responsibility for updating or revising our opinion based on facts, circumstances or events occurring after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the date hereof, the Offer Consideration to be received by the holders of Shares (excluding Stryker, Buyer or any of their affiliates) pursuant to the Purchase Agreement (other than in the case of any Compulsory Acquisition or any other Post-Offer Reorganization resulting in payments other than the Offer Consideration) is fair, from a financial point of view, to such holders.
