Peter Mahler’s New York Business Divorce blog provides a nice summary of my recent (6 parts so far) posts on statutory fair value.
Peter begins his review:
By statute in New York and many other states, including Delaware, the standard of value used in dissenting shareholder appraisals and buy-outs in corporate dissolution proceedings brought by minority shareholders is “fair value.” Fair value is to be distinguished from its better known cousin, ”fair market value,” which is the standard applied in federal estate and gift tax proceedings and in matrimonial cases. In one of the first posts I wrote for this blog over three years ago, I quoted Shannon Pratt’s leading treatise’s definition of fair value – ”a legally created standard of value that applies to certain specific transactions” (Valuing a Business, p. 45 [5th ed. 2008]) – which I in turn translated as meaning ”whatever the courts say it means.”
Leave it to Chris Mercer, one of America’s leading authorities on business appraisal and author of countless books and articles, to tackle the elusive subject of fair value in a series of posts for his new blog called ValuationSpeak. Chris’s posts are must reading certainly for any attorney or business appraiser who handles a valuation proceeding applying the statutory fair value standard. I also commend the articles to any business owner who wants to get a handle on what a fair value appraisal entails, and what discounts will or won’t be taken, to help them make more informed decisions about commencing or defending a judicial valuation proceeding.
Peter’s post then discusses each of the six posts in the series to date. Since he is writing about New York corporate law on his blog, he takes a particular interest in the sixth post, entitled: “Statutory Fair Value: #6 Applicability of Marketability Discounts in New York.”
The last of Chris’s six posts so far on statutory fair value addresses an issue closer to home, namely, the doctrinal and evidentiary bases for the marketability discount in New York case law. Chris’s discussion begins with a summary of New York law concerning marketability discount that I prepared for a post several months ago featuring the Cole v. Macklowe case which he then relates to the levels of value chart. Chris pulls no punches in stating that, while “the issue may be well-settled, it is also well-debated in New York statutory fair value cases because the logic is simply incorrect.” The problem, he says, is that “[i]t is incorrect, both theoretically and practically, to apply a marketability discount to a controlling interest in a business” and that “[t]here are no studies that provide market evidence of a lack of marketability for controlling interests in companies.” Chris questions the current validity of the authorities relied upon in the 1985 Blake ruling that cemented the marketability discount in New York fair value case law. He also illustrates his point using a hypothetical real estate holding company, suggesting that no marketability discount ought to be imposed on top of the “time to market” assumption built into the underlying real estate appraisal. Reminding readers of his “agnostic” stance on “what courts in any jurisdiction call fair value,” he closes with a plea to the judiciary:
What I am concerned about, however, is the fact that courts provide valuation guidance in the process of making their statutory fair value determinations. If that valuation guidance is unclear, or if it is based on inadequate or inappropriate market evidence, then the stage is set for future disputes in fair value determinations.
I’ll close simply by re-urging my interested readers to take the time to study each of Chris’s posts on this important, timely and complex subject.
To facilitate your review and sharing:
- Peter Mahler’s review in its entirety can be found here: http://bit.ly/hxtrwY
- All six articles on Valuation Speak can be found here: http://valuationspeak.com/category/fair-value-statutory/