Users inspire update to the Stout DLOM calculator
Estimating a discount for lack of marketability (DLOM) has just become more robust with a new update to the Stout DLOM calculator.
The Walsh v. Preston ESOP Case—Is It a Victory or an Escape?
Commentary from BVR’s legal editor on an important ESOP valuation case.
The Valuation of Special Share Classes in the United Kingdom
A special analysis of a recent exposure draft concerning shares to employees in the United Kingdom (England and Wales, Scotland, and Northern Ireland ...
Tax Court (Grudgingly) Allows Tax Affecting Under the SEAM Method
This was a gift tax valuation case the U.S. Tax Court decided. Gifts of minority interests in The Biltmore Co. were made from the its shareholders, the Cecils, to their children and grandchildren. The IRS audited the gift tax returns and assessed deficiencies for reporting too low fair market values of the gifts of The Biltmore Co. stock. Both sides presented experts to value the gifted interests. The experts agreed that the cash flows should be tax affected. The court accepted the tax affecting while allowing that it was not an admission by the Tax Court that tax affecting should apply in all cases. The Tax Court made changes to the values presented and cobbled together a final value that resulted in refunds to the taxpayers/petitioners.
Estate of Cecil v. Comm’r
This was a gift tax valuation case the U.S. Tax Court decided. Gifts of minority interests in The Biltmore Co. were made from the its shareholders, the Cecils, to their children and grandchildren. The IRS audited the gift tax returns and assessed deficiencies for reporting too low fair market values of the gifts of The Biltmore Co. stock. Both sides presented experts to value the gifted interests. The experts agreed that the cash flows should be tax affected. The court accepted the tax affecting while allowing that it was not an admission by the Tax Court that tax affecting should apply in all cases. The Tax Court made changes to the values presented and cobbled together a final value that resulted in refunds to the taxpayers/petitioners.
ASA sets date for ESOP conference
Mark your calendars for June 20 for the ASA’s ESOP Virtual Conference.
Business Valuation Update Yearbook, 2023 Edition
January 2023 PDF, Softcover (426 pages)
BVR (editor)
Business Valuation Resources, LLC
Novosel v. Azcon Inc.
In this ESOP-related case, the plaintiff (an ESOP plan beneficiary) raised three complaints, two of which were primarily the result of the performance and use by the ESOP of an interim valuation date for measurement of the value of her shares for her retirement payments made over time. There was also discussion regarding the interim value determined and whether a PPP loan of $1.2 million should have been considered. The defendants moved for dismissal on the first two accounts. The court denied the dismissal of the first complaint in regard to assertions that the use of the interim valuation date was arbitrary and capricious. It also allowed the filing by the plaintiff of a second amended complaint. The court granted the defendants’ motion to dismiss the plaintiff’s complaint regarding the asserted cutback of accrued benefits.
ESOP Case Motions Revolve Primarily Around an Interim Valuation and Consideration of a PPP Loan
In this ESOP-related case, the plaintiff (an ESOP plan beneficiary) raised three complaints, two of which were primarily the result of the performance and use by the ESOP of an interim valuation date for measurement of the value of her shares for her retirement payments made over time. There was also discussion regarding the interim value determined and whether a PPP loan of $1.2 million should have been considered. The defendants moved for dismissal on the first two accounts. The court denied the dismissal of the first complaint in regard to assertions that the use of the interim valuation date was arbitrary and capricious. It also allowed the filing by the plaintiff of a second amended complaint. The court granted the defendants’ motion to dismiss the plaintiff’s complaint regarding the asserted cutback of accrued benefits.
BV News and Trends December 2022
A monthly roundup of key developments of interest to business valuation experts.
Global BV News and Trends December 2022
Business valuation news from a global perspective.
BV News and Trends November 2022
A monthly roundup of key developments of interest to business valuation experts.
In re Navidea Biopharmaceuticals Litig.
A pharmaceuticals company sued its former CEO for, among other things, breach of contract and for a declaratory judgment establishing the contractual rights and obligations of the parties. This resulted in counterclaims by the former CEO, Michael Goldberg. Goldberg submitted for testimony of damages Terry Lee Orr, CPA. In this matter, the company sought to exclude Orr’s testimony and, absent his exclusion, to present their own expert, William F. Murray, CPA, as a rebuttal expert. Goldberg sought to exclude the testimony of Murray. The court excluded portions of Orr’s testimony and denied the exclusion of Murray as a rebuttal expert.
U.S. District Court Partially Excludes Witness in Securities Value Case and Allows Rebuttal Witness
A pharmaceuticals company sued its former CEO for, among other things, breach of contract and for a declaratory judgment establishing the contractual rights and obligations of the parties. This resulted in counterclaims by the former CEO, Michael Goldberg. Goldberg submitted for testimony of damages Terry Lee Orr, CPA. In this matter, the company sought to exclude Orr’s testimony and, absent his exclusion, to present their own expert, William F. Murray, CPA, as a rebuttal expert. Goldberg sought to exclude the testimony of Murray. The court excluded portions of Orr’s testimony and denied the exclusion of Murray as a rebuttal expert.
Another big win for ESOP valuations vs. the DOL
Valuation experts have long maintained that the Department of Labor (DOL) has been playing by its own valuation rules in its aggressive enforcement of ESOPs—rules that are not consistent with accepted valuation standards. But a court has rejected the valuations the DOL did in a case alleging that an ESOP overvalued (and thus overpaid for) the stock of its sponsoring company.
Warranting Further Discussion: Why the Use of Financing Warrants in ESOP Transactions Benefits American Workers
The leveraged Employee Stock Ownership Plan (ESOP) structure was created by US Congress to enable American workers to gain an equity interest in their companies without using their own funds. A critical component in the financing of leveraged ESOP transactions is a “warrant,” which enables corporate sponsors of ESOPs to access the financing necessary to facilitate purchases of company stock by ESOPs. Warrants also afford substantial benefits to ESOPs by providing downside risk for ESOP ...
Mercer’s latest on restricted stock studies
Chris Mercer (Mercer Capital) has been writing a series of articles designed to provide a complete analysis of the historical restricted stock studies many business appraisers rely on for estimating a discount for lack of marketability (DLOM).
Misusing the Market Prices of High-Vote Shares When Estimating a Discount for Lack of Voting Rights
When analysts estimate a valuation discount for the lack of voting rights in the stock of a private company, they typically look to the public market. Many studies have compared the market prices of publicly traded high-vote shares with the market prices of publicly traded low-vote shares. Unfortunately, when the inputs into these studies are examined, the emperor has no clothes.
BV News and Trends July 2022
A monthly roundup of key developments of interest to business valuation experts.
Estate attorney sued over alleged undervaluation
The matriarch of a family business in Hawaii had four children, two of which were involved in the business.
In re GGP, Inc. Stockholder Litig.
Brookfield Property Partners Inc. acquired GGP Inc. in a merger transaction. During negotiations, Brookfield Property Partners LP expressed concern over the number of GGP stockholders who might see appraisal under Delaware law. Brookfield Property Partners suggested inserting an appraisal rights closing condition that allowed it to terminate the agreement if a specified number of GGP shares demanded appraisal. Brookfield Property Partners objected, and the condition was nixed. At the urging of Brookfield Property Partners, the merger was structured so that Brookfield paid a sizable preclosing dividend followed by a small residual payment called a “per share merger consideration.” GGP stockholders were told they could exercise their appraisal rights solely in connection with the merger, set at $23.50 per share, in relation to the per-share merger consideration valued at $0.312 per share. Plaintiff stockholders claimed they were led to believe that a fair value determination would be limited to the value of the post-dividend of GGP. The Supreme Court agreed with the Chancery Court that the defendants did not unlawfully eliminate appraisal rights but disagreed that the proxy disclosures were sufficient.
The Delaware Chancery Court Erred in Dismissing Claims Regarding Appraisal Rights Disclosures in a Merger—Supreme Court Remands
Brookfield Property Partners Inc. acquired GGP Inc. in a merger transaction. During negotiations, Brookfield Property Partners LP expressed concern over the number of GGP stockholders who might see appraisal under Delaware law. Brookfield Property Partners suggested inserting an appraisal rights closing condition that allowed it to terminate the agreement if a specified number of GGP shares demanded appraisal. Brookfield Property Partners objected, and the condition was nixed. At the urging of Brookfield Property Partners, the merger was structured so that Brookfield funded a sizable preclosing dividend which was paid by GGP to eligible shareholders, followed by a small residual payment called a “per share merger consideration.” GGP stockholders were told they could exercise their appraisal rights solely in connection with the merger, set at $23.50 per share, in relation to the per-share merger consideration valued at $0.312 per share. Plaintiff stockholders claimed they were led to believe that a fair value determination would be limited to the value of the post-dividend of GGP. The Supreme Court agreed with the Chancery Court that the defendants did not unlawfully eliminate appraisal rights but disagreed that the proxy disclosures were sufficient.
Takeaways from the ASA’s first ESOP conference
The American Society of Appraisers hosted the inaugural ESOP Virtual Conference on June 21, and here are some notable bits of information we learned.
Couturier v. Comm'r
The Tax Court was asked in this ESOP-related case to approve the taxpayer’s motion for summary judgment. The petitioner contended that the IRS “is precluded as a matter of law from asserting excise tax liability under section 4973” because it did not issue him a notice of deficiency challenging his income tax treatment of the transactions that generated the excess contributions. The motion was denied. The alleged excess contributions were more than $26 million with alleged excise tax of more than $8 million.
Tax Court Denies Taxpayer’s Motion for Summary Judgment Relative to an Excess IRA Contribution Relating to an ESOP Purchase/Sale
The Tax Court was asked in this ESOP-related case to approve the taxpayer’s motion for summary judgment. The petitioner contended that the IRS “is precluded as a matter of law from asserting excise tax liability under section 4973” because it did not issue him a notice of deficiency challenging his income tax treatment of the transactions that generated the excess contributions. The motion was denied. The alleged excess contributions were more than $26 million with alleged excise tax of more than $8 million.