Liquid Air Corporation and Subsidiaries - Page 4

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          percent; and (3) the volume of trading in petitioner's stock on             
          the over-the-counter market is very thin.1  Next, in a letter               
          dated September 18, 1978, addressed to Mr. Breber, Goldman, Sachs           
          & Co. (Goldman Sachs) concluded that the fair market value of               
          3,335,000 shares of petitioner's common stock was $60,697,000 as            
          of April 27, 1978.  Goldman Sachs started with the last bid price           
          on the over-the-counter market on April 27, 1978, of $26 per                
          share,2 and applied a block discount of 30 percent to account for           
          the thin public market and the restricted nature of the stock to            
          be transferred.  The parties to the Contract did not obtain an              
          appraisal of petitioner's shares as of the closing date of the              
               The closing of the transaction contemplated in the Contract            
          occurred on March 28, 1979, approximately 10 months after the               
          signing of the Contract.  Paragraph 22(m) of the Contract                   
          provided that certain adjustments were to be made upon the                  
          closing of the transaction:                                                 

          1The average annual trading volume of petitioner's shares from November     
          1975 through March 1978 was approximately 630,000 shares.  Thus, the 3,335,000
          shares to be issued pursuant to the terms of the Contract represented more  
          than five times the annual trading volume of petitioner's shares.           
          2We note that the bid price on the over-the-counter market on Mar. 29,      
          1979, the day after the closing, was also $26 per share.                    
          3There is some evidence that the IRS conducted an appraisal of              
          petitioner's stock as of the closing date in connection with its audit of   
          Allegheny.  The IRS agent proposed an increase in Allegheny's gain on the sale
          of the IGD's assets in the amount of $16,675,000 to account for an increase in
          the fair market value of petitioner's stock.  However, the appraisal is not in
          the record, nor is there any evidence to explain the procedures and         
          conclusions of the appraiser.  Moreover, the adjustment proposed by the IRS 
          agent was subsequently reversed by the Appeals Division of the IRS.         

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