- 4 -
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
transaction.3
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.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011