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NEW JERSEY COURT USES VALUATION DISCOUNT TO PUNISH “BAD BOY”

Introduction Richard and Steven Parker are brothers who ran a flower business in Scotch Plains, New Jersey.  Richard is the President of Parker Interior Plantscapes (“PIP”), which installs and services plants and flowers in commercial settings.  Steven is the President of Parker Wholesale Florists (“PWF”), which is a garden center.  Each are vice presidents of […] More...

Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

Future Expected Investment Strategy Determines Value of FLP Interest

January 2016 | Issue 83 The estate of Helen P. Richmond held a 23.44% interest in Pearson Holding Co. (“PHC”), a family investment company.  The estate valued this holding at $3,150,000, later adjusted to $5,046,000.  The IRS valued it at $7,330,000.  This difference of opinion was aired in US Tax Court in a case called Estate […] 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.