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Fairness Opinions and Common Stock Valuations
A fairness opinion is a special form of valuation report, usually a letter, that is often viewed as a "shield" against potential legal damages. It states that, in the view of the investment banker, based upon certain procedures followed and assumptions made, a specific transaction at a specific price is fair, from a financial point of view, to specific parties. This chapter is organized in two major parts, (l) the definition of the engagement, and (2) valuation methodology. In most assignments, defining the valuation takes far less time than doing it. Nevertheless, a misunderstanding at the beginning of the engagement can •lead to wasted time and effort. At worst, it can cost the client millions of dollars and tarnish an investment banker's reputation.