Nevada adopts ‘Delaware’ approach to fair value

BVWireIssue #106-1
BVWireIssue #106-1
July 1, 2011

A new dissenting shareholder case from Nevada poses several immediate questions. For instance, why did the dissenting shareholder (an institutional investor holding nearly 600,000 shares of preferred stock), object to the merger price at $3.00 per share when, just one year before, that was the price it paid for the shares—and a year later, during trial, that was what it claimed as “fair value”? Of more interest to appraisers, why didn’t either of the (well-funded) parties obtain an accredited appraisal? During oral argument, counsel for the company maintained that the appraiser it hired could not perform such an “extraordinarily difficult endeavor” because of the nature of the private company stock, its lack of marketability and minority factors. Hmmmm…

At the same time, the company argued that the trial court erred by adopting the merger price as statutory fair value, because it failed to consider such factors as the pre- and post-merger enterprise value of the company stock, including illiquidity. The Nevada Supreme Court rejected these arguments, finding (in a case of first impression) that in a dissenting shareholder case, both sides have the burden of proving their respective valuation positions by a preponderance of the evidence, with the trial court making the final, independent determination. The court adopted this approach from Delaware law and affirmed the lower court’s finding that the $3.00 offering price represented fair value. Read the complete digest of American Ethanol, Inc. v. Cordillera Fund, LP, 2011 WL 1706823 (Nev.)(May 5, 2011) in the August 2011 Business Valuation Update; the court’s opinion will be posted soon at BVLaw.

Keep current on statutory fair value. The 2011 update of BVR’s Guide to Fair Value in Shareholder Dissent, Oppression and Marital Dissolution ships late next week, providing online access to real-time updates of recently published court opinions, case abstracts, new articles, conference presentations, podcasts, news and blog feeds, and more. The Guide also comes in digital format for any eBook reader. The 2011 edition features new articles from leading experts such as Shannon Pratt, Jay Fishman, and Gil Matthews, and an updated, state-by-state chart of shareholder dissent/oppression statutes and FV standards (including discounts). Check out this and all the online resources now available at BVR.

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