Fairness opinion

Read the wording closely, because the narrowness is the point. The opinion addresses the fairness of the consideration from a financial point of view. It is not a view on whether the transaction is a good idea, whether the price is the best obtainable, whether the process was well run, or whether the board should recommend it.

It is signed by the firm rather than by an individual banker, and it is cleared by an internal committee sitting outside the deal team, precisely because the deal team is paid on completion. Where a bank is also providing staple financing or has another interest, boards frequently appoint a second adviser to give the opinion for that reason alone.

It is a US convention because it answers a US problem. A Delaware board that approves a sale without an informed process is exposed to shareholder litigation, and an opinion from an independent adviser evidences that the board informed itself. The supporting analyses are then disclosed to shareholders in the proxy statement.

The European analogue is weaker in form and stronger in obligation. A UK target board must obtain competent independent advice on an offer under the Takeover Code and make its substance known to shareholders, with independence policed by the Panel, but that produces advice on the merits in a response circular rather than a US style opinion with the valuation work attached. France requires an independent expert to report on the financial terms in specified situations such as a buyout by a controlling shareholder, and German boards issue a reasoned statement that is frequently but not necessarily supported by a fairness opinion.