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J.L. Pierson & Co. LLC
BUSINESS VALUATION - LITIGATION SUPPORT
Click here for a decision of the New York courts about a shareholder dispute in Matter of Adelstein Finest Food Distributing Co. NY, Inc.
Click here for an E-mail Alert sent February 11, 2011 about a New York shareholder dispute matter decided by the New York courts in Matter of Elite Technology.
Click here for an E-mail Alert sent May 13, 2010 about the shareholder dispute matter decided by the Delaware Chancery Court in Sunbelt Beverage Litigation.
Click here for an E-mail Alert sent June 1, 2006 about the shareholder dispute matter decided by the Delaware Chancery Court in Delaware Open MRI v. Kessler.
Click here for an article in VALUATION & LITIGATION BRIEFING on Experts Expect the Unexpected in Court.
Click here for an article in VALUE ADDED on When To Call In A Business Appraiser To Support Litigation.
Click here for an article in VALUE ADDED on Using a Business Appraiser in Litigating a Business Valuation Issue.
Statutory Fair Value is a creation of state law which allows redress for a minority shareholder oppressed by the majority. The statutes generally allow for the shares of the minority holder to be redeemed at a pro-rata value of the entire business. Significant differences exists between the states' definition of fair value; for example, under New York law, a lack-of-marketability discount can be taken into account whereas under Connecticut law, it represents a rare exception to the rule. Minority discounts almost never are taken into acount in valuing the minority owner's shares. Consult counsel.
Typical Case No.1
We recently advised a minority shareholder being fired from his job after having turned the business around. The dispute about his rights as a minority holder under state law was arbitrated under the auspices of the American Arbitration Association: his fellow shareholders indicated that the value was nominal while we demonstrated a value in low 7 figures under the fair value standard. We convinced the arbitrator that our valuation was neither too high or too low.
Typical Case No.2
A mid-sized designer and manufacturer of equipment sold to plastic injection machine operators came to us with a problem. Eight years ago, its first generation of owners -3 out of its 4 founders had been cashed out for a number of reasons, such as age, the desire to take it easy, the desire for liquidity, and also the realization that the business needed to catch up with technology and embark on a capital expension plan for which it --and thus they, would have to borrow. They received their share of the agreed amount for the shares, and even agreed to sign Covenants Not To Compete. In the ensuing years, the company grew, but in due course received a notice from IRS disallowing the deductions for the cost of the Covenants.Taking our cue from Beaver Bolt, Inc. vs. Commissioner,T.C. Memo 1995-549 and Thompson vs. Commissioner,T.C. Memo 1997-187, we first determined what the shares were worth given all information known at the time of the buy-out some years back. This was done by the capitalization of earnings method [single period.] and provided the value of the business WITHOUT the covenants in place. We then calculated the value WITH the covenants, i.e. the prospective value of the business at the same time but based on actual results of the 5 years after the covenants were signed. This was calculated by the discounted cash flow method. Based on the methodology cited by the case, the difference between the 2 values is, in effect, the value of the covenants. This most strongly supported the client's case that the covenants had value which could be depreciated.
Typical Case No.3
As part of negotiations leading to marital dissolution, we valued options issued to a key executive of a LBO'ed high tech firm selling to the military. The valuation was based on the analysis of guideline public companies in that industry and on the capitalization of earnings method. The work helped the client value the assets more realistically and make progress in the negotiation.
Typical Case No.4
A well-known artist had been disabled by a accident on the premises of a third-party. Based on the artist's tax returns, government data, and the report of a personal property appraiser, we prepared projections of the missed income which we presented as our estimate of the damages sustained after present-valuing the stream to the accident date at a low government bond rate.
Typical Case No.5
A group of executives who for years managed a mid-sized business had been giving non-voting minority shares. After the controlling owner sold out, they left the firm as their management style did not fit well with that of the new owner. The Company paid to repurchase the shares, but it failed to hire a 3rd party appraiser to determine value as provided in the buy-sell agreement, and instead the new owner determined value. Several years later, the group hired an attorney and sued. I was retained by the attorney to determine the value of the shares. The value of the shares turned out to be minimal, given the competitive structure of the industry, the low profitability, and the high debt leverage the Company was operating under. My recommendation was to settle.
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J.L. PIERSON & CO. LLC
Business Valuation : New York, New Jersey, Connecticut, etc. !
368 Heights Road #2392 e-mail: jlp@NYNJCT-BV.com
Darien, CT 06820, U.S.A.
Voice: (203) 325-2703
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Revised -- 08/22/14