Fair value not always the standard in shareholder actions

BVWireIssue #55-1
April 4, 2007

It’s a common misconception, to presume that statutory fair value is the appropriate standard of value in every shareholder dispute.  But a new Colorado appeals case confirms just how complex and nuanced the use of “fair” in connection to a shareholder remedy can be.  The minority shareholder in Kim v. The Grover C. Coors Trust (March 8, 2007) alleged a breach of fiduciary duty by directors for approving a $100 million sale of preferred stock to raise badly-needed revenue.  It was not a dissenters’ rights action, the appeals court said, which would have invoked the state’s provisions of the Model Business Corporations Act (MBCA) applying the fair value standard and precluding the application of discounts to minority interests.

Instead, this case involved “the question of whether a transaction was fair,” and thus the fair market value standard applied, including the consideration of appropriate discounts.  The case is an excellent reminder that standard of value is the first and most important topic of discussion between analysts and attorneys in any engagement; for a copy of the Colorado opinion, click here.

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