Does statutory fair value include a control premium?

BVWireIssue #59-2
August 8, 2007

Seven states have currently adopted the 1999 amendments to the Model Business Corporation Act, including its specific prohibition against applying minority and marketability discounts. (The states are Connecticut, Idaho, Iowa, Maine, Mississippi, Virginia and West Virginia; Florida has adopted a variation of the amended MCBA.)  In a case of first impression, the Iowa Supreme Court just considered whether the new statutory definition of fair value requires appraising the corporate shares on a marketable, control basis.

The case begins with a quote from Janet Jackson (“It’s all about control”) and ends with lengthy (and favorable) citations to Shannon Pratt, including his comments on the best empirical evidence available to quantify a control premium and the effect of embedded synergistic values.   A case abstract of Northwest Investment Corp. v. Wallace (July 13, 2007) will appear in the next issue of the Business Valuation Update™, and we’ve already posted the full-text of the opinion for subscribers of  BVLaw™.

In the meantime, for a comprehensive overview of statutory fair value, including timely articles by Pratt, Fishman, Bill Morrison and others—plus a comprehensive summary of  shareholder dissent and oppression statutes in all 50 states, categorized according to cases on the application of discounts—check out BVR's Guide to Fair Value in Shareholder Dissent, Oppression, and Marital Dissolution.  For more information, click here.

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