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Fairness Opinions

Boards of directors are required to ensure that the offer is fair to the company's shareholders. When the target is traded in the United States, Regulation 13e-3 requires the board of directors to disclose the details of the transaction including the share price, the historical trade prices of the share, and the company's value as an independent company and in liquidation; to file an independent opinion of the fairness of the transaction or its value (if such an opinion was solicited); and to disclose any other proposals which were made to the company. The opinion is prepared from the point of view of a sale of control of the company, i.e., the valuation used for the opinion is based on the assumption that control of the company is transferred. This viewpoint is important when the minority shareholders could be prejudiced by the transaction. The opinion should also take into account the likelihood that alternative offers will be made to the company by other investors, i.e., a valuation in the case of other strategic investors and the likelihood that such offers will materialize.

The fairness opinion is an important tool in the hands of boards of directors of companies when approving a deal or recommending its approval to shareholders. Such an opinion is also required under the case law of many states (including Delaware) within the duty of care imposed on the target's board of directors.


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