Q&As

What potential liabilities does a financial adviser face when providing a ‘fairness opinion’ on a takeover transaction?

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Published on LexisPSL on 06/11/2017

The following Dispute Resolution Q&A provides comprehensive and up to date legal information covering:

  • What potential liabilities does a financial adviser face when providing a ‘fairness opinion’ on a takeover transaction?
  • Fairness opinion
  • Misleading statements
  • Misleading impressions
  • Duty of care

Fairness opinion

A ‘fairness opinion’ is usually understood as meaning a professional opinion provided by an investment bank or other adviser as to whether the price and/or other terms offered in an M&A transaction is fair and reasonable.

In the context of a public company takeover transaction which is subject to the City Code on Takeovers and Mergers (Code), the term is usually understood to refer to the competent independent advice that the offeree board is required to obtain as to whether the financial terms of any offer (including any alternative offers) are fair and reasonable (Code, Rule 3.1). The offeree board circular (which on a recommended bid is usually incorporated into the offer document) is required to include the substance of the advice given to the offeree board by the independent adviser (Code, Rule 25.2(b)). The Takeover Panel has indicated that an adviser does not incur absolute liability under the Code when giving Rule 3 advice, but is expected to be able to demonstrate that in giving its advice it acted responsibly and reasonably (Takeover Panel annual report for the year ended 31 March 1997).

On UK takeover transactions the offeree’s financial adviser will usually seek to limit

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