DEFINITION of Fairness Opinion
A fairness opinion is a report that evaluates the facts of a merger, acquisition, carve out, spin-off, buyback or another type of purchase and provides an opinion as to whether or not the proposed stock price is fair to the selling or target company. Fairness opinions are provided to the key decision makers in the target/selling company and are written by qualified analysts or advisors, usually of an investment bank. The analysts examine the specifics of the deal, including any possible business synergies that benefit the target/seller if applicable, the terms of the agreement, and the price offered for the stock of the target/seller. Fairness opinions are not always required in transactions involving public companies, but can be helpful in reducing the risk associated with a merger, acquisition, carve out, spin-off, buyback, or another type of purchase, including the risk of litigation. Private transactions may require a fairness opinion.
BREAKING DOWN 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. While they are not required, they can be a good way to reduce risk and facilitate communication between the parties involved. They can be a particularly good idea if the transaction is pending as the result of a hostile takeover, there are multiple offers for the company at different prices, company insiders are involved in the transaction, or there is concern over the fairness of the transaction by board members or shareholders.