Who Decides What's a "Fair" Deal?

I-Banker Conflicts? ... Nothing heats up my Inbox faster than stories about real estate broker conflicts of interest (see Dispatches Nov 2 & 11, 2004 and Apr 5 & 7, 2005). But, hey, what about investment banking conflicts?

"Goldman Had Conflicts? O.K., What's the Problem?" That's the headline about Goldman Sachs representing both sides of the deal between the New York Stock Exchange and Archipelago Holdings (New York Times, May 1, 2005).

Fortune (May 16, 2005) enumerates these conflicts: Goldman owns 15.5% of Archipelago, Goldman owns 1.5% of the seats on the NYSE, and NYSE CEO (John Thain) was previously president of Goldman. A Goldman banker proposed the merger, and Goldman represented both Archipelago and the NYSE.

So Thain and the chairman of the NYSE wrote a letter to seat holders explaining why there was really no conflict. "Goldman was involved in facilitating the transaction and bringing the two parties together. ... It did not assume financial responsibilities, nor did it negotiate the final aspects of the transaction on behalf of either the exchange or Archipelago." (NYT, May 1, 2005) Hmm.

And what about so-called "fairness opinions"? Produced by investment banks, these "are intended to assure the directors of the companies involved in a merger, acquisition or other deal that its terms are fair to shareholders." (NYT, May 29, 2005)

Gretchen Morgenson in the NYT continues her story. When J.P. Morgan Chase proposed to acquire Bank One for $58 billion last year (and earn millions in resulting fees), "the fairness opinion was supplied by -- who else? -- J.P. Morgan Chase."

"However laughable that may be, fairness opinions continue to be used to justify transactions and to provide legal cover for directors fearful of being sued if a deal goes bad." Hmm.

-- Peter Pike