New York partner Steven H. Goldberg and corporate associate Douglas M. Nevin co-authored an article, "Courts Signal that Financial Advisors Issue Fairness Opinions, Not Insurance Policies," which was published in the September 2009, Volume 1, Number 9 edition of Ohio TMA News (Turnaround Management Association) and currently appears in VC Experts.
According to the authors, the role of financial advisors in M&A transactions has garnered increased attention in recent years. Traditionally viewed as a sort of insurance policy for disappointed buyers, financial advisors are now more commonly viewed as service providers responsible for specified duties. The courts have reinforced this position with a string of opinions which both narrowly tailor the role of financial advisors in such transactions and appear to limit their duties of disclosure in connection with financial analyses and the issuance of fairness opinions. In the article, the authors explain the similarities of three recent cases:
In HA2003 Liquidating Trust v. Credit Suisse Securities (USA) LLC, the U.S. Court of Appeals for the Seventh Circuit recently held that financial advisors are only liable for damages resulting from specifically contracted duties. The opinion absolved Credit Suisse First Boston of liability arising out of its engagement as financial advisor to HA-LO Industries ("HA-LO") in connection with HA-LO's acquisition of Starbelly.com. In Globis Partners, L.P. v. Plumtree Software, Inc., plaintiff Globis Partners L.P. ("Globis") sued defendants Plumtree Software, Inc. ("Plumtree") and BEA Systems, Inc. ("BEA") over BEA's acquisition of Plumtree. Globis was a major shareholder of Plumtree stock and it was dissatisfied with BEA's purchase price of Plumtree. Globis claimed that the proxy disseminated by Plumtree to its shareholders over the merger was flawed and that the fairness opinion issued by Plumtree's financial advisor Jeffries Broadview was deficient and misleading. The Court of Chancery of Delaware dismissed all of the claims, holding that Globis must demonstrate a substantial likelihood that the disclosure of the omitted facts would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available. The court further held that Directors must give stockholders financial information material to their decision. County of York Employees Retirement Plan v. Merrill Lynch & Co. arose out of a failed merger between Merrill Lynch ("Merrill") and Bank of America ("BofA"). County of York Employees Retirement Plan asserted that the merger between defendants Merrill and BofA was reached because directors of Merrill failed to satisfy their fiduciary duties, and the preliminary proxy that was disseminated contained an inadequate disclosure of material information. The court dismissed all of the disclosure claims against Merrill and its financial advisor. The court emphasized that boards need not disclose specific details of the analysis underlying a financial advisor's opinion, and that pursuant to Delaware law, Merrill was not required to disclose all financial projections considered by their financial advisor.
In HA2003 Liquidating Trust v. Credit Suisse Securities (USA) LLC, the U.S. Court of Appeals for the Seventh Circuit recently held that financial advisors are only liable for damages resulting from specifically contracted duties. The opinion absolved Credit Suisse First Boston of liability arising out of its engagement as financial advisor to HA-LO Industries ("HA-LO") in connection with HA-LO's acquisition of Starbelly.com.
In Globis Partners, L.P. v. Plumtree Software, Inc., plaintiff Globis Partners L.P. ("Globis") sued defendants Plumtree Software, Inc. ("Plumtree") and BEA Systems, Inc. ("BEA") over BEA's acquisition of Plumtree. Globis was a major shareholder of Plumtree stock and it was dissatisfied with BEA's purchase price of Plumtree. Globis claimed that the proxy disseminated by Plumtree to its shareholders over the merger was flawed and that the fairness opinion issued by Plumtree's financial advisor Jeffries Broadview was deficient and misleading. The Court of Chancery of Delaware dismissed all of the claims, holding that Globis must demonstrate a substantial likelihood that the disclosure of the omitted facts would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available. The court further held that Directors must give stockholders financial information material to their decision.
County of York Employees Retirement Plan v. Merrill Lynch & Co. arose out of a failed merger between Merrill Lynch ("Merrill") and Bank of America ("BofA"). County of York Employees Retirement Plan asserted that the merger between defendants Merrill and BofA was reached because directors of Merrill failed to satisfy their fiduciary duties, and the preliminary proxy that was disseminated contained an inadequate disclosure of material information. The court dismissed all of the disclosure claims against Merrill and its financial advisor. The court emphasized that boards need not disclose specific details of the analysis underlying a financial advisor's opinion, and that pursuant to Delaware law, Merrill was not required to disclose all financial projections considered by their financial advisor.
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