What is the difference between the Board of Directors and the Special Committee

Noticed when skimming some decks that some are addressed to the Special Committee, others to the Board of Directors with the remaining being simply Discussion Materials. Is there any difference between these titles or do they all share the same meaning?

My thinking is that some decks are prepared for ("The Company"), of which these decks are not pitches as they contain the full suite of valuations. Other decks are presented to potential buyers, be it financial sponsors or strategics. 

Does the term "Special Committee" refer to that only of The Company's? Does the Board of Directors also refer to that of The Company's?

Also, are the materials sent to potential buyers presentations or CIMs (like word docs instead of ppts)


Comments (6)

FellowTraveler, what's your opinion? Comment below:

Not an expert, but in my limited experience, special committees are created ad hoc when the company is evaluating a transaction that could - or even appears that it could - favor one or more members of the board more than, or at the direct expense of, the rest of the shareholders. Needless to say, any board members who would disproportinately benefit from a contemplated transaction (related party transaction, go-private, etc.) are excluded from the special committee. Classic example is an LBO where the CEO, who presumably is a board member, would remain the CEO of the company under private equity ownership, and get loaded up with stock options in the now private company. S/he has an incentive to sell the company for a low price (=low strike price on his/her options), which conflicts with his/her responsibility to maximize value for current shareholders.

  • 3
rabbit, what's your opinion? Comment below:

Special or independent committees typically consist of independent directors (no shareholding or material financial interests in the business) formed to represent the interests of minority shareholders.

Hypothetically, think about a company with a majority shareholder and a tiny tiny float, e.g., majority holder owns 90%, public shareholders own the other 10%. All rules aside, and again super simplistically, if an offer came in to acquire the company at a 50% discount to share price, theoretically the majority holder holds all the cards with 90% of the voting shares. The role of an SC is to represent the interests of the minority 10%.

In the case of an M&A transaction, an SC would be formed and they would retain "independent" advisors to for example, opine on the fairness of the deal from a financial point of view to shareholders, which is the fairness opinion. The SC will take these opinions and views from financial, legal etc. advisors and make a recommendation to the Board in support of or against the deal. The Board then votes to send the deal to shareholders.

The other aspect of SC and fairness opinions are to cover their asses legally. Simplistically, If say a shareholder sues the Board because they deem the terms to be unfair or whatever, Board can point to a process whereby an independent committee with no material financial stake in the deal evaluated the terms and value considering the opinions of independent advisors.

  • Intern in IB-M&A

Super informative, appreciate it.

Noticed that some decks are titled, "Presentation to the Special Committee of the Board of Directors". So is it possible that the SC is on The Board?

  • Associate 2 in IB-M&A

Are there any differences between special committee assignments and fairness opinions? It seems like the only difference is that the audience of the fairness opinion is the entire Board and shareholders, whereas the the audience of the special committee recommendation is just the special committee (i.e., subset of the Board). If this is the case, then the company would still need to get a fairness opinion (even after the special committee recommendation). Which is more lucrative to the bank from a fee perspective?

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rabbit, what's your opinion? Comment below:

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