Court rejects experts' fair value determinations in Minnesota buyout case

Lund v. Lund, 27-CV-14-20058, Hennepin County, Minnesota

The plaintiff is the “prevailing party,” a Minnesota district court recently decided, allowing the minority owner of a well-known family business to sell her share for over $40 million. The valuation trial featured high-caliber experts who disagreed about every input and assumption underlying their discounted cash flow analyses. The judge, well versed in valuation jurisprudence, decided the significant value gap reflected bias on the experts’ parts and performed her own analysis to determine fair value.

This opinion deals with key valuation issues, including the appropriateness of DLOM in forced buyouts and as such represents an important addition to appraisal jurisprudence.

The intrafamily dispute involved a 25% interest in three Lund entities: a chain of upscale grocery stores operating in the Twin Cities’ area under “Lunds & Byerlys,” a related management company, and a real estate holding company. Kim Lund was one of the founder’s four grandchildren. After almost 20 years of trying to affect a buyout, she filed suit in 2014 against her brother Tres, the only family member directly involved in running the business, as well the Lund companies. In October 2016, the court issued a buyout order and most recently held trial to determine the fair value of the three companies.

Most of the value was in the grocery-related businesses. Both experts used income and market approaches for their calculations, but the court rejected their guideline public companies analyses, finding the selected companies simply were not comparable.

The court found weaknesses in both of the expert DCF analyses such that the plaintiff expert’s value conclusion was too optimistic and the defense expert’s valuation unduly pessimistic. The problem started with the cash flow projections, the court decided.