A fairness opinion is a statement of a financial advisor’s opinion as to the fairness, from a financial point of view, of the consideration paid or received in a corporate transaction. While not formally required by rule or statute, fairness opinions have become a standard element of public corporate control transactions since 1985, when the Delaware Supreme Court held that a board of directors breached its duty of care by approving a merger without adequate information on the transaction, referring specifically to the board’s failure to obtain a fairness opinion, among other things. From the perspective of boards of directors and other corporate fiduciaries, fairness opinions serve a number of useful purposes.
From a procedural standpoint, a fairness opinion provides evidence that the board sought professional advice regarding the financial aspects of a proposed transaction. From a legal standpoint, a fairness opinion provides evidence that the board gathered all reasonably available information and exercised reasonable business judgment in its evaluation of a proposed transaction. Under the business judgment rule, courts generally will not second-guess the decisions of a board of directors (or find liability for honest mistakes) provided that such directors have acted (i) on an informed basis, (ii) in good faith, (iii) in a manner they reasonably believe to be in the best interest of the company, and (iv) without fraud or self-dealing.