Now that’s disclosure.
Many shareholders may not like what they read when they peruse the filing that lays out Magna MG.A-Tdecision to offer a sweet deal to founder Frank Stronach, but as circulars go, what a read it is.
The odds are that nobody has ever said this about Magna before, but this puts the company squarely at the forefront of where disclosure ought to be going.
Shareholders should apparently hope that every board doing a deal refuses to give a recommendation on how stock owners should vote and doesn’t bother providing a fairness opinion. That’s what it took to get the Ontario Securities Commission to demand the better disclosure from Magna’s board, and the result is far better than what shareholders normally get.
After all, consider the alternatives of a board recommendation to vote for or against a deal and a fairness opinion.
A directors’ recommendation is helpful, but the fact is few shareholders would rely on it. They want to do their own work. For that they need information and analysis.
As far as fairness opinions go, one wonders why anyone would care that there is no fairness opinion for any deal.
The standard fairness opinion in Canada is three or four pages of boilerplate on an investment bank’s letterhead, laying out what the bankers looked at and what they didn’t to determine the deal’s merit. After that verbiage, there’s the verdict, which inevitably says, “From a financial point of view, the deal is fair.”
(The reason nobody remembers seeing the opposite conclusion in a fairness opinion is that banks hew to the motherly principle of “if you can’t say something nice, don’t say anything at all.”)
The conclusion is all there is for shareholders to go on. There is no proof. There are no figures to back it up. It’s a trust-me statement from an investment bank that in many cases is being paid if the deal goes through, presenting a potential conflict of interest (even though the OSC has tried to discourage that practice).
Fairness opinions were never intended to help shareholders. As one senior merger lawyer puts it, they were invented by lawyers and ended up making bankers rich.
