For almost 40 years, Fairness Opinions have been used as a critical part of the mergers and acquisitions process. A fairness opinion is a financial advisor’s opinion that states whether or not the financial terms of a proposed transaction are within a range of fairness, expressed from an economic point of view to one or more specific parties of the proposed transaction as of a particular date. By hiring a third-party financial advisor to issue a fairness opinion, company boards and trustees are able to mitigate risk and help fulfill their fiduciary responsibilities to their shareholders. Fairness Opinions have become a regular feature of corporate transactions since 1985 when the Delaware Supreme Court issued its opinion in the landmark case Smith v. Van Gorkum.
In Smith v. Van Gorkum, the Court found that a corporate board (Trans Union Corporation) breached its fiduciary duty of care by approving a merger without:
- understanding adequate information on the transaction
- including details on the value of the company
- reviewing the the fairness of the offering price