Fairness Opinions evaluate the overall fairness of offer prices in tender offers and are routine. They are normally obtained by a board of directors of target companies in some 60% of public tender offers (International M&A Review 2004).

In the UK, boards must request independent financial advice before deciding whether to recommend an offer to shareholders.

Fairness Opinions do not have any foundation in statutory and regulatory requirements but are triggered by defensive considerations because of potential shareholder challenges. While US securities regulations do not require that a board seeks these opinions or that the opinions obtained be made public under SEC regulations, companies must publish the contents of a fairness opinion if the opinion is mentioned in a tender offer document and the transaction is subject to proxy rules or requires a registration statement.

In the UK the Takeover Code governs public offers and the directors must obtain independent advice on a takeover offer and communicate the substance of that advice to shareholders. Disclosure of the full contents of the advice is not required.

Generally, as a matter of corporate law US and UK directors have fiduciary obligations of care, loyalty and honesty to their company. These duties are the reason for many shareholder suits against boards and encourage boards to obtain fairness opinions from Valuation Consulting.

The use of fairness opinions in Europe is a long way behind that in the UK and US however there is a growing taste for fairness opinions, particularly in France, followed by Germany.

Our reports to support financial diligence in sale and leaseback transactions include those underpinned by substantial plant and machinery and real estate. Clients have included Investcorp, Deutsche Bank and Bankers Trust.

Other examples occur in situations where a corporation issues say, a £100 million plus note under an indenture for which a substantial trust company will be the Trustee. We deliver a letter setting out the result of the transaction procedures to the corporation on behalf of the note holders under the indenture, typically described as Bondholders in connection with the sale agreement.

The scope of the engagement would include verifying the original cost of the assets (for example bonds, land or plant and machinery, and intangibles), performing limited-scope research into the market for similar assets and investigation into transactions involving assets with characteristics similar to the asset and finally, given a stated set of assumptions and limiting conditions, opine on the fairness of the Agreement to the Bondholders. Additionally, it may be required of us to perform limited-scope statistical analysis related to the expected useful life of equipment and investigate the range of interest rates commonly applied in similar lease transactions.

Thus boards of Directors, plan trustees, and other fiduciaries must meet a high standard of due diligence when acting on behalf of their constituencies. Valuation Consulting assist such groups and conduct objective analysis of transactions that would significantly affect the constituencies by preparing fairness opinions and comfort letters regarding the transactions. Autonomy in the UK and Leica Geosystems in Switzerland have received our opinions recently.