13.4 Particular Remarks on External Fairness Opinions 443Before permitting buyer due diligence, the target may, for legal reasons, have
required members of the buyer’s board to undertake non-disclosure obligations
(NDA). Contractual undertakings may have been necessary for a combination of
reasons: members of the buyer’s board do not owe any general duty of confidenti-
ality to the target company;^41 disclosure of inside information to a person who
does not owe a duty of confidentiality to the issuer triggers a duty to make the
same information public; and stock exhange rules can require project-specific in-
sider lists.
In addition to insider rules (Chapter 19),^42 there can be other provisions of law
that prevent members of the buyer’s board from using information obtained in the
course of buyer due diligence. For example, they may have a personal duty not to
use information if it has been obtained unlawfully.
13.4 Particular Remarks on External Fairness Opinions
In the EU, both parties often supply fairness opinions from an investment bank as
part of the due diligence process. Fairness opinions are typical where the transac-
tion must be authorised by the general meeting (for mergers, see section 5.11.7).
The board will submit the fairness opinion to the general meeting.
Purpose. The stated purpose of fairness opinions may be to ensure that the
transaction is fair to shareholders from a financial point of view. In addition, their
typical hidden purpose is to: make the proposed transaction look favourable; sig-
nal to shareholders that they should vote for the transaction or accept the offer;
and to mitigate the risk of board members’ liability for breach of duty. The board
may also submit other opinions by independent advisers.
How fair are external fairness opinions? External fairness opinions are not al-
ways “fair”. Typically, investment banks have significant discretion in arriving at
a “fair” price. They do not have incentives to provide an accurate valuation and
might have incentives to provide a fairness opinion supporting the position of the
party inviting the opinion.^43 At best, fairness opinions offer a view as to whether
the transaction as a whole and the consideration offered in the transaction are
within the range of what would be considered “fair”, rather than offering an opin-
ion as to whether the transaction and the consideration offered are the best that
could likely be attained.
Regulation. The submission of a fairness opinion or the substance of other in-
dependent advice can be mandatory under the applicable securities markets laws.
In the absence of a mandatory rule, it may be part of commercial practice. Typi-
cally, a fairness opinion can also be considered by the court as evidence that board
members tried to make a well-informed decision based on objective advice.
(^41) See Article 6(3) of Directive 2003/6/EC (Directive on market abuse).
(^42) Article 2(1) of Directive 2003/6/EC (Directive on market abuse).
(^43) Generally, see Bebchuk LA, Kahan M, Fairness Opinions: How Fair Are They and
What Can Be Done About It? Duke L J 1989 (Symposium: Fundamental Corporate
Changes: Causes, Effects and Legal Responses) pp 27–53.