Fairness opinion

Brazilian law does not generally require a fairness opinion. Its use comes from governance and from directors' duty of care. It concentrates on transactions with conflicts of interest or likely scrutiny by minority shareholders, such as related-party transactions, group reorganizations, tender offers and fund decisions involving conflicts of interest.

CVM Guidance Opinion 35 covers mergers, amalgamations and share mergers (incorporação de ações) between a parent and its subsidiary or between companies under common control. For these transactions it recommends negotiation by an independent special committee or approval by a majority of the non-controlling shareholders. It also recommends that directors consider hiring financial advisers independent of the controlling shareholder, with properly substantiated valuations.

Law 6,404/1976, arts. 153 and 264 · CVM Guidance Opinion 35/2008

The opinion defines the transaction, the party it addresses and the valuation date, and describes the information used. The analysis behind the conclusion combines an independent valuation of the asset or company, usually by discounted cash flow and by trading and transaction multiples, with a review of the proposed terms.

The conclusion compares the proposed price or exchange ratio with the resulting range of values and states whether the terms are fair from a financial point of view to the addressed party. The decision to proceed remains with the body that commissioned the opinion.

A valuation report determines a value and meets a legal requirement, such as the reports under arts. 8, 226 and 264 of the Brazilian Corporations Law and under CVM Resolution 215 for tender offers. A fairness opinion addresses the terms of a transaction and does not replace the report when the law requires one. The two can coexist in the same transaction with separate scopes. The legally required reports are described on the page on valuation reports for mergers.

Law 6,404/1976, arts. 8, 226 and 264 · CVM Resolution 215/2024

The usefulness of a fairness opinion depends on the independence of its issuer. CBG does not act as financial adviser to any party in negotiating the transaction, charges no fee tied to closing and submits every opinion to review by a senior professional who was not involved in preparing it.

The scope sets the transaction, the addressed party, the valuation date and the timetable. For a transaction of medium complexity with orderly access to information, the usual timetable is four to six weeks from kickoff to issuance.

CBG presents the analysis to the committee or board before the decision and answers questions from directors and auditors on the work.

There is no general legal requirement in Brazil. It is adopted for governance reasons, especially in related-party and conflicted transactions, and helps document that directors made an informed decision.

To the body deciding the transaction, usually the board, the independent committee or the fund administrator. The opinion names the party in relation to which the terms are assessed, such as the company or the non-controlling shareholders.

It compares the proposed terms with a range of values supported by the analysis and concludes whether they are fair from a financial point of view. Different prices within that range can be equally fair.

The law does not prohibit it. A conflict of interest arises when the issuer also advises one of the parties in the negotiation or receives a success fee. For this reason CBG issues fairness opinions only on transactions in which it acts as financial adviser to no party, with no fee tied to the outcome.

A fairness opinion addresses the price or exchange ratio. A solvency opinion assesses whether the company remains solvent after a transaction that distributes cash or adds debt, such as an extraordinary dividend, a debt-funded share buyback or a leveraged buyout.