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The Art of Capital Restructuring: Creating Shareholder Value through Mergers and Acquisitions by H. Kent Baker, Halil Kiymaz

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CHAPTER 26

Fairness Opinions in M&As

STEVEN M. DAVIDOFF

Associate Professor of Law, University of Connecticut School of Law

ANIL K. MAKHIJA

David A. Rismiller Professor of Finance, Fisher College of Business, The Ohio State University

RAJESH P. NARAYANAN

Charles Clifford Cameron Associate Professor of Finance, Ourso College of Business, Louisiana State University

INTRODUCTION

In evaluating a merger or acquisition (M&A) proposal, boards frequently seek to determine that the consideration to be paid or received is “fair from a financial point of view” to shareholders. For such a purpose they obtain a “fairness opinion” from a financial advisor. Typically, the investment banks advising on the merger render the opinion, although other entities that specialize in valuation may also be called upon to provide one as well.

The chapter begins with a summary description of the fairness opinion's procedures and content to highlight how its form and structure result from concerns regarding liability associated with delivering the opinion. This description clarifies that a fairness opinion is not an appraisal of target value. Instead, it is the opinion of the advisor that the consideration is within a range of values that would be deemed “financially” fair, although the opinion does not detail how various valuation analyses are combined to arrive at a judgment of fairness, nor does it provide an explanation as to what would constitute fairness in the considered context. The chapter then proceeds ...

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