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June 2017 | Issue 86 Background Constellis Group,  Inc. is a private security firm.  In December 2013, the Company formed an Employee Stock Ownership Plan (“ESOP”), which purchased 100% of Constellis’s voting stock.  Wilmington Trust NA was named Trustee of the ESOP.  Less than a year after the ESOP was created, the ESOP sold all […] More...


March 2017 | Issue 85 Introduction Richard and Steven Parker are brothers who ran a flower business in Scotch Plains, New Jersey.  Richard is the President of Parker Interior Plantscapes (“PIP”), which installs and services plants and flowers in commercial settings.  Steven is the President of Parker Wholesale Florists (“PWF”), which is a garden center.  […] More...

Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

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New Fairness Opinion Ruling Addresses Conflicts

March, 2008 | Issue 25


The SEC has approved a new rule addressing conflicts of interest by firms providing fairness opinions in connection with change of control transactions. Rule 2290, originally drafted by the NASD (now FINRA), took effect December 8, 2007. A copy of the rule can be found here.


Fairness opinions are routinely used by directors of companies and other fiduciaries in connection with merger or sale transactions in order to satisfy their duties to act with due care in an informed manner. Fairness opinions have become commonplace in change of control transactions following the 1985 Delaware Supreme Court case of Smith v. Van Gorkom, in which a corporate board was held to have breached its fiduciary duty of care by approving a merger without adequate information on the transaction, including information on the value of the company and the fairness of the offering price.

The new rule grew out of a concern that certain merger advisors who were preparing fairness opinions on a given transaction might also have a contingent fee stake in the successful completion of the transaction that could color their judgment in preparing the fairness opinion.


The new rule requires that members who render fairness opinions inform investors/shareholders about the potential conflicts of interest that may exist between the firm rendering the fairness opinion and the parties to the transaction. Disclosure is required of financial advisory roles or other material relationships with any party to the transaction, as well as of contingent compensation that might be received in connection with the transaction.

Rule Does Not Prohibit Conflicts

Rule 2290 does not prohibit conflicts by firms issuing fairness opinions, but only requires disclosure of such conflicts. There are some who feel that shareholders are better served when directors select financial advisors to provide fairness opinions that do not have a conflict with respect to the transaction.

Hempstead & Co. would welcome your inquiry should you require assistance with a fairness matter. We do not prepare fairness opinions on transactions where we have a contingent fee interest. Our experience as an independent business valuation firm means that a client can have the assurance that our advice will be appropriate and objective.