Take 145;fairness opinion146; before a merger

Currently, shareholders generally go by the arguments put out by the companies whenever a merger takes place. 8220;Some companies take investors for a ride by recommending valuations skewed in favour of promoters. Investors have no way to scrutinise the valuation method of the companies,8221; said an official of an accounting firm.

The move by the regulator has its precedence in the US, as there financial advisors typically provide fairness opinions in corporate control transactions, including mergers and acquisitions, as well as purchases or dispositions of material assets, divisions or subsidiaries. Fairness opinions express a view as to the fairness of the consideration to be paid or received in the proposed transaction, or of the exchange ratio in the case of stock-for-stock transactions.

The scope of fairness opinions is, however, limited to the financial terms and does not evaluate whether the price being paid is the best or if it benefits any individual officers, directors or employees. These do not constitute recommendations to shareholders as to how they should vote on a proposed transaction, or whether they should take any other action. Opinions are based on market, economic and other conditions existing on the dates the opinions are delivered.

Regulator rules

The fairness opinion should be made available to the shareholders at the time of approving the resolution under Clause 24

Merging companies will be required to appoint an independent merchant banker for giving a fairness opinion on the valuation

Fairness opinions express a view as to the fairness of the consideration to be paid or received in the transaction, or of the exchange ratio