Ch 3 Deck 8 Flashcards
FINRA rule 5150 addresses the concern that fairness opinions might not be
completely objective (because paid product)
FINRA rule 5150 requires firms to have written procedures that identify the type of
the types of transactions (e.g., mergers, acquisitions) in which the firm will use a fairness committee to approve or issue a fairness opinion
FINRA rule 5150 requires firms to have written procedures that describe the processes for selecting
fairness committee members
FINRA rule 5150 requires firms to have written procedures that describe the necessary qualifications of
fairness committee members
FINRA rule 5150 requires firms to have written procedures that describe the process for promoting
a balanced review by the fairness committee
FINRA rule 5150 requires firms to have written procedures for determining if the valuation analysis
used for fairness opinions was appropriate
FINRA rule 5150 does not require a member firm to have
a fairness committee
If the fairness opinion will be provided by the company to public shareholders, then
certain disclosure may be required.
A fairness opinion of a merger or acquisition states that
the transaction is fair from a strictly financial perspective
A fairness opinion is not
an evaluation of the strategic rationale for the acquisition
a legal opinion
a recommendation that the board should accept the offer
A deal is deemed to be fair if
the price falls within a range of values based on standard valuation processes and previous transactions
Fairness opinions help a board demonstrate
that they have fulfilled their fiduciary duty to the shareholders.
With respect to disclosing significant payment or compensation related to a fairness opinion, FINRA does not
assign a particular dollar amount or percentage
With respect to disclosing significant payment or compensation related to a fairness opinion, FINRA does
apply the reasonable person rule to the fairness opinion
the reasonable person rule with respect to the fairness opinion states
reasonable person believes that the payment or compensation should be disclosed, then it should be disclosed.
NASD Rule 2290 states that when investment bankers are giving a fairness opinion, they must disclose
any possible conflicts of interest
Fairness opinion rules require disclosure by advisor of conflicts of interest, but they do not
prevent the conflict of interest
FINRA Rule 5150 states that an IB that serves as a financial adviser on a M/A may write a fairness opinion, but it must disclose
- that it was an adviser
- if it will receive compensation contingent on success
- any material relationship within the last 2 years
Steps to closing an acquisition
- Review proxy statement disclosure
- Verify approvals from DOJ and FTC under HSR
- Verify Due diligence complete
SEC rule 145 states that investors who acquire (or exchange) securities by way of a merger, consolidation or reclassification
do not need to register those securities before selling them
Under SEC rule 145, securities obtained through mergers, transfer of assets, or classifications that were authorized via a shareholder vote are
considered “sales” of securities
Under SEC rule 145, non-affiliate acquirers of (securities obtained through mergers, transfer of assets, or classifications that were authorized via a shareholder vote) are not considered
underwriters and are therefore not subject to resale restrictions
Under SEC rule 145, non-affiliate acquirers of (securities obtained through mergers, transfer of assets, or classifications that were authorized via a shareholder vote) are considered underwriters if
the transaction involves a shell company
Under SEC rule 145, if the transaction does involve a shell company,
the acquirer is subject to resale restrictions
