In EFFECTIVE VALUATION & LITIGATION SUPPORT IN CORPORATE SECURITIES LAWSUITS, forensic accounting expert witness Richard M. Squar, CPA, CVA, ABV, CFF, MBA-Taxation, writes:
In conjunction with statutory definitions of value, additional levels of value are analyzed for their applicability.
FURTHER LEVELS OF VALUE
Relative Levels of Value
• Enterprise value • Marketable minority interest value • Nonmarketable minority interest value
Other Levels of Value • Forced nature of transaction
The valuation expert considers the appropriateness and applicability of relative levels of value once the standard of value has been determined. Relative levels of value refine the valuation approach to further economic logic. This refinement involves appraising dissenting shareholders’ interests based on a percentage of the enterprise value (value including a premium for company control), discounting the enterprise value for lack of control to determine marketable minority interest value (value based on market prices), or further discounting due to lack of marketability of minority interests to determine nonmarketable minority interest value. Statutory definitions of value must allow for application of these concepts.
Certainly, if allowed by state statutory law in dissenting shareholders’ actions, such as a statutory merger, the forced nature of the transaction supports an economic argument that the dissenting shareholders should receive some premium above a minority interest value. The corporation is forcibly taking their shares, and all shareholders are compelled to tender and forgo future participation in the ownership of the company.
Richard M. Squar has over 23 years experience in public accounting providing expert advice in the areas of business valuations and litigation support; corporate, partnership and individual tax planning and representation before taxing authorities; and profit enhancement.