Fairness, Solvency and Surplus Opinions
Over the more than 25 years since the inception of CVA, we have performed more than 200 fairness, solvency and surplus opinions. These opinions have been prepared for transactions ranging from a few million dollars to multi-billion dollar transactions.
The idea that the Board of Directors of a given company owes a fiduciary duty to the shareholders of that company is a concept which is well known, well embedded in case precedent and consistently reaffirmed by the courts. While board constituency is generally comprised of skilled, educated individuals, those individuals are not experts on all matters which may come before the board. When confronted with an issue which involves consideration of matters beyond their scope of expertise, prudent boards invoke the assistance of experts.
We are repeatedly called upon by corporate boards to answer the question of value as it pertains to such matters as the fairness of a price offered by a potential suitor for the entire company or the price offered for a minority, but yet sizeable, stake in the company, the financial solvency of the company after giving effect to a stock redemption or the payment of a dividend or whether the company even has sufficient surplus under relevant state law to make the redemption or dividend payment.
All of the foregoing business transactions have the determination of value as their starting point. In order for the directors to sustain a good faith defense on matters of value, they must first demonstrate good faith in their determination of value. For this reason, corporate boards continue to call upon CVA as our track record attests to our status as experts on value.
Potential reasons for requesting a financial opinion
- Provide the Board of Directors an additional layer of protection by having a third party independently evaluate a transaction.
- Determine if enough surplus exists to issue a dividend to shareholders.
- Support minority shareholders positions that they are not being unfairly diluted after a recapitalization.
- Ease lenders solvency concerns regarding issuance of debt.
Types of opinions
- Solvency opinions
- Surplus/Capital adequacy opinions
- Fairness opinions