The June 2008 issue of the Business Valuation Update (BVU) featured an abstract of Baldwin v. Bader, in which a minority shareholder brought claims against the controlling shareholders for wrongful issuance of shares and dilution of his interest. A key component of the case centered around the value of personal guaranties of corporate debt by the corporation’s insiders, and the plaintiff challenged the defendant corporation’s expert testimony.
Judge Cohen, of the U.S. District Court (Maine), excluded the expert’s opinion regarding the value of the guaranties, based on a number of factors. Significantly, the expert used a WACC method to calculate value. The plaintiff’s expert, in response, told the court that the WACC method is more appropriately applied when valuing “medium-sized to larger companies,” where here, the subject company was a small business. In more than thirty years, the plaintiff’s expert continued, he had “never seen a guaranty fee calculated using the methodology proposed.”
Shortly after this ruling, Judge Cohen retired from the bench, and the defendants asked for reconsideration. It has come to our attention that the court has now vacated Judge Cohen’s exclusion, and the matter has been set for rehearing.
What the court’s ultimate, reconsidered decision will be remains to be seen. Any future developments concerning the challenged valuation testimony—as well as the final outcome of this case—will be featured in a future issue of the BVU (or BVWire.)