Defective fairness opinion favoring merger results in $4,250,000 NYSE award for shareholders (NYSE, 1994)
Partners of the firm won an award of approximately $5,000,000 for several doctors who claimed that a major investment banking firm issued a misleading “fairness opinion” in connection with the merger of two medical companies, one of whose shares the doctors owned. The investment banking firm rendered a formal opinion that the proposed merger was fair to shareholders, including the doctors who were represented by Page Gard Smiley & Bishop. However, immediately following the merger, the price of the resulting company’s stock dropped by 50% on news that operating results would be much lower than projected. The claimants in this NYSE arbitration contended that the investment bankers violated Section 11 of the Securities Act of 1933 by failing to disclose information about the anticipated revenue shortfall and its probable impact on the merged company’s share price. The NYSE arbitration award, the first of its kind, drew immediate attention in the investment banking community and was the subject of an article in the August 25, 1995 Wall Street Journal, “Big Board Panel Orders CS First Boston To Pay $5 Million Over Fairness Report.” In their award, a panel of New York Stock Exchange arbitrators ordered First Boston to pay damages of $4,474,197, as well as $500,000 in attorneys’ fees and costs.