Fairness Opinions in Mergers and Acquisitions

THE ART OF CAPITAL RESTRUCTURING: CREATING SHAREHOLDER VALUE THROUGH MERGERS AND ACQUISITIONS, H. Kent Baker, Halil Kiymaz, eds., Wiley, 2011

12 Pages Posted: 21 Mar 2011 Last revised: 17 Apr 2011

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy

Anil K. Makhija

Ohio State University (OSU) - Department of Finance

Rajesh P. Narayanan

Louisiana State University

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Date Written: April 8, 2011

Abstract

When evaluating a merger or acquisition proposal, boards frequently seek fairness opinions from their financial advisors. This fairness opinion ratifies the consideration being paid or received as "fair from a financial point of view" to shareholders. This chapter (Chapter 26 in "The Art of Capital Restructuring: Creating Shareholder Value through Mergers and Acquisitions", Baker and Kiymaz (eds.),Wiley 2011) describes how a Delaware Supreme Court ruling and Delaware corporate law combined to institutionalize fairness opinions and how the form and content of a fairness opinion results from concerns over limiting the liability associated with delivering the opinion. It then surveys the limited finance literature that examines whether fairness opinions provide value to shareholders or serve the interests of the board and management at the expense of shareholders. It also highlights the difficulties associated with conducting such empirical tests because of the way fairness opinions are sought and provided. It concludes with some conjectures about the potential value of fairness opinions, and raises questions for future research.

Keywords: Fairness Opinions, Mergers and Acquisitions, Investment Banking

JEL Classification: G24, G34

Suggested Citation

Davidoff Solomon, Steven and Makhija, Anil K. and Narayanan, Rajesh P., Fairness Opinions in Mergers and Acquisitions (April 8, 2011). THE ART OF CAPITAL RESTRUCTURING: CREATING SHAREHOLDER VALUE THROUGH MERGERS AND ACQUISITIONS, H. Kent Baker, Halil Kiymaz, eds., Wiley, 2011 . Available at SSRN: https://ssrn.com/abstract=1789014 or http://dx.doi.org/10.2139/ssrn.1789014

Steven Davidoff Solomon

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

Anil K. Makhija

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-1899 (Phone)

Rajesh P. Narayanan (Contact Author)

Louisiana State University ( email )

Baton Rouge, LA 70803-6308
United States
225-578-6236 (Phone)

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