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Value Shift Turns Nest Egg into Goose Egg

March 2015 | Issue 78 Bright beginnings We’ve seen this happen all too often.  Harry Jones* goes to work for Virus Systems, an early-stage biotech firm.  His compensation package includes 100,000 shares of Virus common stock. Virus’ accountant needs a valuation for the stock as of the date of grant so that he can record […] More...

Arizona Beverages Partners Air Widely Divergent Value Views

December 2014 | Issue 77 Introduction This valuation proceeding arose out of a four-year litigation struggle between John Ferolito and Domenick Vultaggio, the co-founders of AriZona Beverages. AriZona is the largest privately-owned beverage company in the United States. Stated simply, the case involved the valuation of the AriZona entities (“AriZona” or “company”); a collection of […] More...

Personal Goodwill, is it Part of Company Value?

September 2014 | Issue 76 PERSONAL GOODWILL, IS IT PART OF COMPANY VALUE? Background Franklin Adell died on August 13, 2006. Included in his estate was a 100% interest in a company called STN.Com, Inc. (“STN”). The estate initially valued STN at $9.3 million. The IRS issued a notice of deficiency which valued STN at […] 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.