Fair price provision

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Fair price provision

Fair Price Provision

A provision in the bylaws of some publicly-traded companies stating that a company seeking to acquire it must pay a fair price to targeted shareholders. The formula for determining a fair price may be indicated in the bylaws; it is often a calculation based on historic prices. Additionally, the fair price provision mandates that the acquiring company must pay all shareholders the same amount per share in multi-tiered shares. The fair price provision exists both to protect shareholders and to discourage hostile acquisitions by making them more expensive. See also: Antitakeover measure.
References in periodicals archive ?
These include dual class recapitalization, classified boards, supermajority requirements, fair price provisions and elimination of cumulative voting.
While four studies found that classified board provisions, fair price provisions, supermajority provisions and elimination of cumulative voting provisions have insignificant wealth effects (DeAngelo & Rice, 1983; Lauterback, Malitz, & Vu, 1991; Linn & McConnell, 1983; McWilliams, 1990), several other studies found support for the entrenchment hypothesis (Agrawal & Mandelker, 1990; 1992; Bhagat & Brickley, 1984; Jarrell & Poulsen, 1987; Mahoney & Mahoney, 1993; Mahoney, Sundaramurthy, & Mahoney, 1996).
For instance, Jarrell and Poulsen (1987) posit that fair price provisions are less restrictive than nonfair price provisions because fair price provisions are intended to discourage two-tier tender offers, where the bidder does not offer a uniform price to all shareholders.
During the takeover heyday, challenges centered around defensive mechanisms -- poison pills, classified boards, fair price provisions, and opt-outs of state takeover legislation.