For business appraisers and those interested in the topic of statutory fair value. Webinar delivered June 28, 2011 by Z. Christopher Mercer, ASA, CFA, ABAR and CEO of Mercer Capital. www.mercercapital.com.
3. Z. Christopher Mercer, ASA, CFA, ABAR Deposition and trial testimony Fair Value Matters TRIAL TESTIMONY Alabama Arkansas Colorado Kansas Minnesota Mississippi Missouri New York Tennessee Texas Alabama (Arbitrator) DEPOSITION TESTIMONY Alabama Arkansas Colorado Georgia Kansas Illinois Minnesota Mississippi Missouri Nevada Tennessee Texas West Virginia OTHER FAIR VALUE ENGAGEMENTS Florida Kentucky Delaware Ohio Oklahoma New Jersey ?
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9. Traditional Levels of Value The control value refers to the value of the enterprise as a whole The marketable minority interest value refers to the value of a minority interest that lacks control but enjoys the benefit of liquidity as if it were freely tradable in an active market The nonmarketable minority interest value refers to the value of a minority interest that lacks both control and market liquidity
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21. Engagement Definition Appraisal Scope of Work We understand that our appraisal will be used as a basis for determining the fair value of 20.873 shares of common stock of Company Name in connection with litigation related to a reverse stock split that was effective as of December 31, 2003. We further understand that our appraisal will be submitted in connection with this litigation and that Z. Christopher Mercer, ASA, CFA, CEO of Mercer Capital, may be requested to provide deposition and/or trial testimony related to the opinions in this appraisal. Purpose & Intended Use December 31, 2003 Effective Date See further discussion below regarding Standard of Value Level of Value Fair Value. Fair value is to be determined pursuant to Alabama Code §10-2B-13.01. Definitions (4). State of Value Shares of Stock Subject to a Recent Reverse Stock Split Business Interest Under Consideration Somewhere, Alabama Principal Business Location Alabama State of Organization C Corporation Type of Entity Company Name Business Name Name1, Name2, Name3, Name4, PC Client Name
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25. The following “levels of value” chart provides a conceptual illustration of the interpretation of each of the three levels of value noted above in valuation terms
40. New York Matter of Giaimo Source: Business Valuation: An Integrated Theory, 2 nd Edition | Mercer & Harms (John Wiley & Sons, 2007)
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43. “ Marketability Discount” in New York What’s an Appraiser to Do? Source: Business Valuation: An Integrated Theory, 2 nd Edition | Mercer & Harms (John Wiley & Sons, 2007) If applicable, economics suggest nil or small
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51. IMD – Texas Arbitration Shootout One appraiser considered the implied minority discount by estimating the extent of expected merger synergies in typical bank change-of-control transactions, splitting the difference between financial and strategic control
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56. Marketable Minority Cash flow expectations drive transactional pricing relative to the marketable minority pricing
57. Source: Business Valuation: An Integrated Theory, 2 nd Edition | Mercer & Harms (John Wiley & Sons, 2007)
58. How can all public companies be trading at less than their “intrinsic worth”? Harkens back to the Nath hypothesis in 1990
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62. Statutory Fair Value and Buy-Sell Agreements Source: Business Valuation: An Integrated Theory, 2 nd Edition | Mercer & Harms (John Wiley & Sons, 2007)
63. What is the appropriate value in most negotiated buy-sell agreements to determine price when trigger events occur? Source: Business Valuation: An Integrated Theory, 2 nd Edition | Mercer & Harms (John Wiley & Sons, 2007)
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Editor's Notes
In what states have you testified, either in deposition or at trial?
What is a standard of value? What are the most commonly used standards of value? Why is the standard of value important to an appraisal? What is the standard of value for this appraisal? How does an appraiser take this definition and develop an actual opinion of fair value? Are you a lawyer? Do you read fair value cases? Yes, we read from business and valuation perspectives Why do you read them?
Why is the concept of “levels of value” so important in a fair value determination?
Will you describe the levels of value for the court?
Now will you explain what the key valuation premiums and discounts are that relate the different levels of value?
Can you summarize this discussion of levels of value and the implications for your fair value determination?
Do you show the levels of value in your report? Looking at the charts it appears there can be different values for the same company. How is that? Why do you show financial control value sitting on top of marketable minority value? Why might there be a divergence between financial control value and marketable minority value? Are these two levels the same thing?
Do you show the levels of value in your report? Looking at the charts it appears there can be different values for the same company. How is that? Why do you show financial control value sitting on top of marketable minority value? Why might there be a divergence between financial control value and marketable minority value? Are these two levels the same thing?