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A Response to an Article on S Corp Tax Affecting

This is a response to “Tax Affecting S Corporations: It’s Not a Matter of Whether. It’s a Matter of When,” written by Alan S. Zipp, that appeared in the December 2017 issue of Business Valuation Update.

In re AOL Inc.

In statutory appraisal, court finds sales process was not “Dell compliant” and declines to assign any weight to deal price; court agrees with parties’ experts that DCF best captures fair value on valuation date and arrives at final value below deal price.

Chancery Relies on DCF Where Deal Process Is Not ‘Dell Compliant’

In statutory appraisal, court finds sales process was not “Dell compliant” and declines to assign any weight to deal price; court agrees with parties’ experts that DCF best captures fair value on valuation date and arrives at final value below deal price.

Verition Partners Master Fund Ltd. v. Aruba Networks, Inc.

In statutory appraisal proceeding, Court of Chancery says unaffected market price provides “direct evidence of the collective view of market participants” as to target’s fair value whereas deal-price-minus-synergies is a less reliable “indirect measure.”

Court Calls Stock Price ‘Most Straightforward’ Indicator of Fair Value

In statutory appraisal proceeding, Court of Chancery says unaffected market price provides “direct evidence of the collective view of market participants” as to target’s fair value whereas deal price minus synergies is a less reliable “indirect measure."

Delaware Supreme Court balks at Court of Chancery’s Dell decision

Twice, in 2017, the Delaware Supreme Court struck down statutory appraisal rulings by the Delaware Court of Chancery that dismissed the importance of the market price.

Court Validates Use of IPO Valuation in Fair Value Proceeding

In shareholder suit involving pharmaceutical startup with uncertain prospects, appeals court upholds trial court’s rejection of expert testimony based on “traditional” valuation methods in favor of noncontemporary IPO valuation to determine fair value.

Wright v. Phillips

In fair value determination analogous to statutory appraisal valuation, Chancery says companies’ S corp status “has discrete value applicable here,” as captured in expert’s use of 14.5% tax rate (as opposed to 31%); court approves marketability discount.

S Corp Status Adds ‘Discrete’ Value to Business, Chancery Says

In fair value determination analogous to statutory appraisal valuation, Chancery says companies’ S corp status “has discrete value applicable here,” as captured in expert’s use of 14.5% tax rate (as opposed to 31%); court approves marketability discount.

Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd. (II)

High Court rejects Chancery’s decision to disregard deal price entirely in favor of court’s DCF analysis; record belies Chancery’s finding that deal price undervalued company stock, High Court says, urging adoption of deal price as fair value on remand.

Delaware Supreme Court Rebukes Chancery for Disregarding Deal Price

High Court rejects Chancery’s decision to disregard deal price entirely in favor of court’s DCF analysis; record belies Chancery’s finding that deal price undervalued company stock, High Court says, urging adoption of deal price as fair value on remand.

New York Court Validates DLOM in Real Estate Holding Company Valuation

In partnership dispute, New York appellate court, citing precedent, approves of use of marketability discount in fixing the fair value of the limited partner’s interest in real estate holding company; however, court rejects use of a minority discount.

Matter of Levine v Seven Pines Assoc. Ltd. Partnership

In partnership dispute, New York appellate court, citing precedent, approves of use of marketability discount in fixing the fair value of the limited partner’s interest in real estate holding company; however, court rejects use of a minority discount.

High Court Finds Chancery’s Weighting of Values Unexplained and Inexplicable

State Supreme Court declines to create presumption for appraisal actions that deal price is best indicator of value when merger was arm’s-length transaction, but court finds Chancery’s valuation approach lacked support in record and requires revaluation.

DCF Projections Failed to Reflect Target’s Operative Reality, Chancery Says

In joint fiduciary-appraisal action centering on Sprint’s acquisition of minority interest in related entity, Chancery says merger was entirely fair and adopts respondent expert’s DCF analysis; huge value gap is 90% due to experts’ choice of projections.

Management forecasts receive close scrutiny from courts

In assessing the soundness of valuations, courts in a variety of cases have been paying close attention to the management projections appraisers have used or decided not to use in performing their value analyses. If courts are scrutinizing projections for reliability and plausibility, experts hoping to prevail in the litigation context must do so as well.

From the Chair

I enjoyed seeing many of you at the Advanced Business Valuation Conference in Houston. Despite hurricane Harvey’s efforts to slow us down, the conference was a great all-around success.

‘Fanciful’ Projections Make DCF an Unreliable Tool in Appraisal Proceeding

In statutory appraisal, Chancery decides to “defer” to deal price, citing a robust sales process and well-functioning market; petitioners’ DCF analysis was not a useful valuation tool where it was based on, “at best, fanciful” management projections.

Chancery’s DCF Upends Appraisal Arbitrage Strategy

In statutory appraisal, Chancery relies solely on DCF analysis, noting the instant case involving a bank holding company raises a unique situation in terms of management projections and whether and how to account for creation of excess regulatory capital.

Work File Checklist for Fair Value Overview Under New Regulations

Anyone doing fair value for financial reporting should comply with the requirements under the new CEIV credential whether they hold the credential or not. CEIV holders will have a work file reviewed within the first year they receive the credential and th ...

Chancery’s fusion valuation triggers remand and some words of wisdom by Del. Supreme Court

The Delaware Supreme Court recently overturned a 2016 ruling by the Delaware Court of Chancery that arrived at fair value by weighting the results of three valuation techniques equally. The high court's Chief Justice Strine, who once headed the Chancery, found this approach was problematic and used the decision to provide valuation advice to his successor, Chancellor Bouchard, who had overseen the appraisal proceeding.

Court Validates Use of IPO Valuation in Fair Value Proceeding

In shareholder suit involving pharmaceutical startup with uncertain prospects, appeals court upholds trial court’s rejection of expert testimony based on “traditional” valuation methods in favor of noncontemporary IPO valuation to determine fair value.

Kottayil v. Insys Therapeutics, Inc.

In shareholder suit involving pharmaceutical startup with uncertain prospects, appeals court upholds trial court’s rejection of expert testimony based on “traditional” valuation methods in favor of noncontemporary IPO valuation to determine fair value.

In Big Buyout Ruling, Minnesota Court Rejects DLOM in Calculating Fair Value

In a forced buyout, court says experts were too partisan to their clients, compromising value analysis; court performs its own valuation using DCF to determine fair value of grocery business and rejects DLOM because no unfair transfer of wealth occurs.

SEC’s Daubert Challenge to Securities Valuation Testimony Fizzles

In an SEC case requiring valuation of restricted securities, court admits most of the testimony of parties’ experts; experts need not be specialists in given field and need not demonstrate familiarity with USPAP or SSVS to qualify under Daubert, court fin ...

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