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Delaware Chancery Case on Shareholder Dissent Likely to Raise Eyebrows

A practitioner’s commentary on the Cellular case focuses on the tax-affecting issues in the case.

Cellular Telephone: An Interesting Decision for Valuation Practitioners

A recent Delaware decision in a breach of fiduciary duty case awarded more than triple the amount originally paid to partners who were squeezed out of their collective 1.881% interest in a partnership. Several aspects of this decision are of particular interest to valuation practitioners, especially those whose practice includes litigation services. The case is: In Re Cellular Tel. P’ship Litig.; 2022 Del. Ch. LEXIS 56 (Cellular).

Delaware Chancery rejects partnership valuation in a freeze-out

In a coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, the court found that AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price.

In Re Cellular Tel. P’ship Litig.

In this coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price. The freeze-out was subject to the entire fairness standard of review. AT&T bore the burden of proving that the freeze-out was entirely fair to the minority partners. AT&T failed in that proof and thereby sought to capture future value for itself. AT&T did not employ any procedures that insured fairness to the minority partners. The lead partner of the valuation firm had a long-standing relationship with AT&T, and internal AT&T personnel influenced the outcome of the valuation. The court determined the fair value of the interest as a remedy to the situation.

Delaware Chancery Court Rejects Partnership Valuation in a Freeze-Out as Unfair to Minority Partners

In this coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price. The freeze-out was subject to the entire fairness standard of review. AT&T bore the burden of proving that the freeze-out was entirely fair to the minority partners. AT&T failed in that proof and thereby sought to capture future value for itself. AT&T did not employ any procedures that insured fairness to the minority partners. The lead partner of the valuation firm had a long-standing relationship with AT&T, and internal AT&T personnel influenced the outcome of the valuation. The court determined the fair value of the interest as a remedy to the situation.

Bohac v. Benes Serv. Co.

The Nebraska District Court in this case applied discounts to its determination of fair value (FV). The Supreme Court found that the district court did not use the correct definition of fair value, resulting in discounts being applied to the estate’s shares. The Supreme Court also found that the proper premise of value was going concern and the proper methodology for value was the asset approach. The Supreme Court also allowed as a liability the deferred tax on potential future sale of assets by the corporation.

The Nebraska District Court Is Reversed in Its Determination of Fair Value

The Nebraska District Court in this case applied discounts to its determination of fair value (FV). The Supreme Court found that the district court did not use the correct definition of fair value, resulting in discounts being applied to the estate’s shares. The Supreme Court also found that the proper premise of value was going concern and the proper methodology for value was the asset approach. The Supreme Court also allowed as a liability the deferred tax on potential future sale of assets by the corporation.

Tales From the Trenches: The Case of the 70% Equity Interest Valued as a Minority

Don’t assume a 70% interest represents a majority for valuation purposes. This is the latest in our series of articles from veteran appraisers based on actual engagements.

Valuing Minority Interests in the UK Is ‘Especially Challenging’

Comments by Andrew Strickland, a consultant with Scrutton Bland in the UK, on transactions involving fractional interests in closely held companies. He also offers a summary of discounts from a sample of relatively recent cases.

Valuing minority interests in the United Kingdom is ‘especially challenging’

‘Valuing fractional interests in closely held companies is especially challenging,’ Andrew Strickland reports to BVWire—UK.

Puklich v. Puklich

In buyout dispute related to various family businesses, including auto dealership, high court finds trial court was authorized to adjust value finding to account for majority shareholder’s oppressive conduct; case law supported rejection of discounts in valuing minority shareholder’s interest.

High Court Approves of Trial Court’s Rejection of Discounts in Fair Value Determination

In buyout dispute related to various family businesses, including auto dealership, high court finds trial court was authorized to adjust value finding to account for majority shareholder’s oppressive conduct; case law supported rejection of discounts in valuing minority shareholder’s interest.

Appeals court upholds Lund buyout ruling and fair value determination

A protracted Minnesota buyout dispute involving the heirs to a local grocery store empire, Lunds & Byerlys, may have reached the end following a recent ruling from the state appeals court. The reviewing court upheld the trial court’s decision to grant the minority shareholder’s request for a buyout as well as the court's fair value determination.

New Jersey Court Finds Defendant’s Actions Justify DLOM in Forced Buyout

In New Jersey fair value determination, following precedent, court finds defendant’s conduct justifies use of a marketability discount because he was oppressing shareholder who created “extraordinary circumstances” necessitating forced buyout; court rejec ...

Ambiguous expert report prompts order to revalue minority interest

A recent Wisconsin case illustrates that a shareholder agreement in place is no guarantee for a smooth buyout of the minority shareholder. The case also includes a caution to experts to strive for clarity in their expert reports.

New Jersey court applies DLOM in forced buyout: Defendant’s conduct created ‘extraordinary circumstance’

In adjudicating a New Jersey family dispute that escalated into an oppressed shareholder action, the trial court recently found the oppressing shareholder had created a situation that mandated the application of a discount for marketability (DLOM) in order to achieve a “fair and equitable” outcome.

New Jersey Court Finds Defendant’s Actions Justify DLOM in Forced Buyout

In New Jersey fair value determination, following precedent, court finds defendant’s conduct justifies use of a marketability discount because he was oppressing shareholder who created “extraordinary circumstances” necessitating forced buyout; court rejec ...

Parker v. Parker

In New Jersey fair value determination, following precedent, court finds defendant’s conduct justifies use of a marketability discount because he was oppressing shareholder who created “extraordinary circumstances” necessitating forced buyout; court rejec ...

Chancery says bids in squeeze-out merger are not comparable

The Delaware Court of Chancery recently cut short a challenge to a going-private merger when it dismissed the plaintiffs' complaint. The plaintiffs unsuccessfully argued the defendants breached their fiduciary duties when they favored the controller's lower bid over a third-party bidder's higher offer.

Challenge to new Section 2704 regulations is shaping up

The accounting, valuation, and legal professions are hard at work to defeat the Treasury Department's proposed Section 274 regulations. The new regs would curtail, if not entirely eliminate, valuation discounts in family-controlled entities.

Parties’ Valuation Contract Precludes Review of Minority Discount

In share buyback case where parties agree to retain joint appraiser, whom they know from past appraisals of company, and commit to be bound by appraiser’s valuation, court declines to consider seller’s challenge to appraiser’s use of minority discount.

Expert’s Poor Grasp of Valuation Issues Undercuts Shareholder Suit

Appeals court affirms soundness of going private merger; court says plaintiffs failed to point to better offer and their expert lacked formal accounting, economics, and valuation training and displayed a light grasp of issues related to company’s value.

Curran v. Curran

In share buyback case where parties agree to retain joint appraiser, whom they know from past appraisals of company, and commit to be bound by appraiser’s valuation, court declines to consider seller’s challenge to appraiser’s use of minority discount.

Rubin v. Bedford

Appeals court affirms soundness of going private merger; court says plaintiffs failed to point to better offer and their expert lacked formal accounting, economics, and valuation training and displayed a light grasp of issues related to company’s value.

Zelouf Court Reasserts Its Objection to DLOM

New York court rejects majority owners’ post-trial objection to prior ruling against DLOM based on unlikelihood of sale of the business; court is guided by fairness, noting “a DLOM here would be the economic equivalent of imposing a minority discount.”

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