fair price provision


State law or a bylaw of a corporation's charter that compels a bidder for the corporation's majority stock to pay at least the fair market price for the stock held by minority stockholders. This price is usually computed as a multiple of the target firm's price-to-earnings (P/E) ratio. The P/E ratio is based either on the target firm's historical earnings or from a combination of the firm's and its industry's P/E ratio. In some cases the fair price is fixed as a specific sum, or it may be stated as the maximum price paid by the bidder for any portion of the firm's ordinary stock.
In a two-tier takeover attempt, this provision ensures that the stockholders who tender their stock in the second tier receive at least the same price as those who tendered their stock in the first tier. The fair price provision can be annulled by the target firm's board of directors upon a super-majority decision, usually requiring 95% of the voting rights.

Use this term in a sentence

You should try to make sure that you do not do anything that may get others saying you are breaking the fair price provision.

​ Was this Helpful? YES  NO 11 people found this helpful.

The fair price provision was a very interesting provision for sure, but it had a lot of difficult things in it for me to understand.

​ Was this Helpful? YES  NO 10 people found this helpful.

When buying stocks from minority holders, Ben had to abide by the fair price provision and pay those holders at least $200 per stock, its current market price.

​ Was this Helpful? YES  NO 11 people found this helpful.

Show more usage examples...

Browse Definitions by Letter: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
fair price fair rate of return