DealLawyers.com Blog

December 17, 2009

Relative Fairness Opinions and the ACS/Xerox Merger

Here are some further thoughts from Kevin Miller of Alston & Bird on fairness opinions (some prior thoughts are here):

There continues be confusion regarding whether Evercore rendered a relative fairness opinion in the ACS/Xerox transaction. Recent articles in a few publications continue to suggest that it did. I don’t think so.

While the Evercore opinion does state that Evercore took into account the additional merger consideration to be received by the holders of the Company Class B Common Stock in the Merger in evaluating whether the Merger Consideration received by the holders of Company Class A Common Stock was fair, from a financial point of view, to the holders of the shares of Company Class A Common Stock (other than those holders who also hold shares of the Class B Common Stock), I think the Evercore opinion includes an express disclaimer of relative fairness:

“We have not been asked to pass upon, and express no opinion with respect to, any matter other than the fairness to the holders of the Company Class A Common Stock, from a financial point of view, of the Merger Consideration. We do not express any view on, and our opinion does not address, the fairness of the proposed transaction to, or any consideration received in connection therewith by, the holders of any other securities [i.e, holders of Class B Common Stock], creditors or other constituencies of the Company, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or any class of such persons, whether relative to the Merger Consideration [received by the holders of Class A Common Stock] or otherwise.” (emphasis added)

See the top of page 3 of Annex D of the draft Joint Proxy/Prospectus relating to the Merger.

The Evercore language that it “took into account” the additional Class B consideration is sometimes included in opinions relating to top hat/double dummy transactions – i.e., where a new holdco is formed and the two combining entities merge with separate merger subs formed by new holdco. In those transactions, in order to properly evaluate the exchange ratio in the merger between Company A and Merger Sub A, you need to “take into account” the exchange ratio in the merger of Company B with Merger Sub B because without giving effect to the second merger, you can’t calculate the percentage of new holdco that will be owned by the former shareholders of Company A – or other merger consequences – e.g., pro forma earnings per share for accretion dilution and other analyses.

Similarly, in ACS, you can’t calculate what percentage of Xerox will be owned by the former holders of ACS Class A Common Stock or other merger consequences without taking account orgiving effect to the additional consideration being paid to the holders of Class B Common Stock.

Given the disclaimer of relative fairness, I think it would be a stretch to interpret the “giving effect to language” in the Evercore opinion as implying that the opinion was intended to address relative fairness.

Nevertheless, I believe Evercore did provide the ACS committee with data and financial analyses with which the ACS committee could evaluate the financial implications of the additional Class B consideration in accordance with the Delaware Supreme Court’s holding in Levco (see pages 99-100 of the draft joint proxy/prospectus). I just don’t think they addressed relative fairness in their opinion.