Definition
A fairness opinion is a professional evaluation by an investment bank or other third party as to whether the terms of a merger, acquisition, buyback, spin-off, or privatization are fair. It is rendered for a fee. They are typically issued when a public company is being sold, merged or divested of all or a substantial division of their business. They can also be required in private transactions not involving a company that is traded on a public exchange, as well as in circumstances other than mergers, such as a corporation exchanging debt for equity. Some of the specific functions of a fairness opinion are to aid in decision-making, mitigate risk, and enhance communication.
Fairness Opinion
What is ‘Fairness Opinion’
A report evaluating the facts of a merger or acquisition. Fairness opinions are compiled by qualified analysts or advisors, usually of an investment bank, for key decision makers. The report examines the fairness of the offered acquisition price.
Explaining ‘Fairness Opinion’
A fairness opinion provides guidance to the parties involved in a merger, takeover or acquisition. This could include the shareholders of the company being acquired or the acquiring company. It is essentially a professional opinion supported by collected data, for a fee.
Further Reading
- Fairness opinions and the business judgment rule: an empirical investigation of target firms' use of fairness opinions – heinonline.org [PDF]
- Fairness opinions in mergers and acquisitions – papers.ssrn.com [PDF]
- Are fairness opinions fair? The case of mergers and acquisitions – www.sciencedirect.com [PDF]
- Information production by investment banks: Evidence from fairness opinions – www.journals.uchicago.edu [PDF]
- Enhancing the value of fairness opinions: Limiting risk in the post-enron era – www.ingentaconnect.com [PDF]
- The Information Provision in the Corporate Acquisition Process: Why Target Firms Obtain Multiple Fairness Opinions – meridian.allenpress.com [PDF]
- The certification hypothesis of fairness opinions for acquiring firms – www.sciencedirect.com [PDF]
- An Economic and Behavioral Analysis of Investment Bankers When Delivering Fairness Opinions – heinonline.org [PDF]
