6. What are the points requiring attention with regard to a fairness opinion?

Although this is not mandatory, (independent) directors of a listed company often task a financial expert with drawing up a fairness opinion on the proposed exchange ratio (see FAQ 7). This is a good practice.

For a valuation analysis to be regarded as a fairness opinion, such a report must, in the FSMA's view, meet a number of conditions:

  • The analysis must be delivered by a professional and independent party; special attention needs therefore to be paid to the selection of the financial expert. This means first and foremost that the expertise (financial and technical knowledge as well as familiarity with the activities of the company concerned), resources and professional reputation of the expert should be appropriate for the assignment. Furthermore, the expert appointed must be independent both of the parties involved in the operation and of the operation itself. He or she may not, for example, have any interest in the success of the operation as a result of the way in which he or she is remunerated for the assignment.
    The takeover legislation includes explicit criteria for the appointment of an independent valuation expert in cases of takeover bids launched by a controlling shareholder. The FSMA advises companies to follow similar criteria for selecting the expert who is to prepare a fairness opinion.
  • The valuation made by the expert who provides a fairness opinion must be as broad as possible. Substantial limitations regarding the valuation task are not desirable. Thus, the FSMA takes the view that the expert should also test the reasonableness of the business plans, forecasts and hypotheses underlying the valuation.

In order that the shareholders may be able to estimate correctly the scope of the fairness opinion, the FSMA recommends that listed companies provide explicit explanations in the special and/or written reports (see FAQ 3) as regards the independence of the expert, including the structure of the latter's remuneration, the scope of (and any limitations on) his or her assignment and the conclusion of his or her work.