The days of “one- to two-page” fairness opinions are limited, according to Jeff Tarbell (Houlihan Lokey, San Francisco), who spoke on “Advanced Issues in Transaction Fairness Opinions” at the ASA BV in San Diego. FINRA’s new rule 2290 requires several new elements. “Nine out of ten problems with fairness opinions come from using management projections, so the new rule requires that appraisers start verifying documents independently,” Tarbell said. Another change: Any compensation packages put in place after the deal begins must now be disclosed. “Your fairness opinion needs to comment on ‘stay bonuses’ and other deal-related compensation.” Appraisers should also make sure to document what they do from the time they start the engagement until they close the file. Tarbell told attendees of a New York securities lawyer who (prior to the new rules) argued to the Delaware Chancery Court that the situation was like Lucy in the booth with a sign saying “Fairness Opinions: 5¢.” “Those days are ending,” Tarbell said.
Models now available: Tarbell recommended two “model” fairness opinions that incorporate the longer-form disclosure required by the new rules. The first, issued just last week, is from the acquisition of Boise Cascade, and is more “normal,” he said. (The Houlihan Lokey opinion begins on page 95.) The second, “interesting more for its unusual aspects,”—including 20 years of management projections—concerns the proposed Sirius Satellite /XM merger (the Morgan Stanley opinion begins on p. 26 and Annex B; JP Morgan opinion begins on page 35 and Annex C).
Please let us know
if you have any comments about this article or enhancements you would like to see.