Valuation ‘coming to the fore’ in current ESOP litigation

BVWireIssue #120-1
September 12, 2012

Valuation evidence and experts were the “big issue” in a recent jury trial—and the big reason why the plaintiffs, former participants in an employee stock bonus plan, won $1.5 million from their employer and plan administrator, reports Steve Whittington (Willamette Management Associates) in the most recent post to WMA’s new blog, Business Valuation Expert.

In Finnerty v. Stiefel Laboratories, Inc., Case No. 09-21871-CV (S.D. Fla.), a group of disgruntled shareholders claimed the plan (which for 25 years was an ESOP) valued their put rights at only $13,000 to $16,000 per share when—during the same period—the plan’s appraiser knew that PE funds offered upwards of $60,000 per share. Indeed, the company closed one of those deals and ultimately sold for $68,000 per share. At trial, the plaintiffs’ experts conducted multiple appraisals under various scenarios, including controlling and noncontrolling as well as discounted values. All showed a range of value well above the plaintiffs’ put price. “In sum,” Whittington says:

ESOP litigation is an area where we are seeing a lot more activity these days than at any time in the past. This case calls to the fore the critical issues for a dissenting or disgruntled shareholder: Did I get all the money I was due? The natural focal point of that question is whether the valuation was properly performed or not. In this case, it appears that the proper due diligence and valuation considerations were not taken into account.

Case update: After the $1.5 million verdict, the defendant immediately moved for a judgment as a matter of law and also—to preserve its rights—filed a notice of appeal to the 11th Circuit. Final pleadings on the former are due any day, and, of course, any published decision by the federal court will serve as binding precedent in the ESOP arena.
Stay tuned …

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