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Preferred Shareholders Prevail in Trados Transaction

April 2014 | Issue 73 Trados, Inc. was sold to another company for $60 million in July of 2005.  The sale proceeds were distributed as follows; Trados management received $7.8 million, preferred shareholders received $52.2 million and common stockholders received nothing. Certain common stockholders sued.  The story is told in a Delaware Chancery matter called [...] More...

Tax Court Takes a New Valuation Line on Built-in Capital Gains

March 2014 | Issue 72 U.S Tax Court Judge David Gustafson was faced with the task of determining the fair market value of an interest in an investment company named Pearson Holding Co. (“PHC”).  The case is Estate of Richmond v. Commissioner T.C. Memo 2014-26 (February 11, 2014). At the time of her death, December [...] More...

Is a Member’s Interest Worth More Than an Assignee’s Interest?

February 2014 | Issue 71 A recent Tax Court case involved the valuation, for estate tax purposes, of a 16.667% interest in a real estate holding company.  The company, called 37-41 East 18th Realty Co., LLC, owned a 78,000 square foot commercial building in Manhattan.  The case is Estate of Tanenblatt v. Commissioner, T.C. Memo. [...] More...

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Fairness Opinions

A fairness opinion is a statement by an independent qualified financial expert which sets forth the expert’s opinion as to the “fairness” of the terms of a particular specified financial transaction from the standpoint of a certain designated party or parties.

When are fairness opinions used?

The questions of whether and when a fairness opinion is needed is usually guided by legal considerations. Fairness opinions are often employed in corporate transactions where there is a less-than-arms-length relationship between the parties negotiating the transaction. For example, if a public company is carrying out a “going private” transaction in which company officers or directors are to become shareholders of the new company, a fairness opinion would typically be sought in order to ensure that the financial terms of the transaction are fair to the public shareholders of the old (selling) company.

Another situation in which a fairness opinion might be employed would be in the case of a merger between two companies having significant overlapping shareholder groups or inter-company shareholdings.

Even in cases where there are no conflicts of interest, fairness opinions are often used to ensure fairness. For example, directors of a company will obtain a fairness opinion in connection with a corporate merger or sale or financing transaction if they believe that they lack the expertise necessary to reach, on their own, an informed opinion as to the fairness of the proposed transaction. A retained independent financial advisor will provide them with the expertise they need to properly perform their duties as directors.

Who should provide fairness opinions?

A financial advisor retained to provide a fairness opinion should be someone who is independent of any of the parties to the transaction and who is possessed of the education, experience and expertise needed to analyze the financial terms of the proposed transaction using methods which are generally employed in the financial community.

Hempstead & Co. LLC has extensive experience in providing fairness opinions in connection with a wide variety of corporate transactions involving both public and private companies.