Freres Lumber Co., Inc. - Page 24

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            petitioner would save if the Walker entities stopped bidding on                                
            public timber.  Clausen studied sales by the Forest Service, BLM,                              
            and the State of Oregon to quantify how much direct competition                                
            there was between the Frereses and Walkers during the 7 years                                  
            before the Walker asset sale.  He found nine sales in which                                    
            petitioner was the high bidder and Walker was the second high                                  
            bidder.  He assumed that petitioner could have been the high                                   
            bidder for slightly more than the third high bid for those sales                               
            if Walker had not bid.  He subtracted the high bid from the third                              
            high bid.  The difference is the "upbid".  In his opinion, the                                 
            upbid was the cost Walker imposed on petitioner.  He calculated                                
            that the annual average upbid for the 7-year period was $524,400.                              
            He applied that amount to each year from 1981 to 1987.  He                                     
            calculated the total present value of the upbids over the 7 years                              
            to be $1,568,277 discounted by 20 percent and $1,757,870                                       
            discounted by 15 percent.  He averaged those two amounts and                                   
            concluded that the covenants were worth $1,650,000.                                            
                  We believe Clausen significantly overstated his conclusion.                              
            He assumed that the upbid is the difference between the highest                                
            and third highest bid.  Clausen did not adequately explain why he                              
            subtracted the upbid resulting from two bidders to estimate the                                
            effect on the contract price of one bidder.  He did not explain                                
            why it is reasonable to assume that a bidder could count on                                    
            beating the third highest bidder by an insignificant amount.                                   

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Last modified: May 25, 2011