- 42 -
A minority discount reflects a minority shareholder’s
inability to compel liquidation and realize a pro rata share of
the net asset value. Estate of Jung v. Commissioner, 101 T.C.
412, 434 (1993); Harwood v. Commissioner, 82 T.C. 239, 267
(1984), affd. without published opinion 786 F.2d 1174 (9th Cir.
1986). Generally, the trading price of securities in a free and
active market represents the value of marketable minority
17(...continued)
1992); Estate of Brownell v. Commissioner, T.C. Memo. 1982-632.
We disagree.
In Philip Morris, Inc. and Consol. Subs. v. Commissioner,
supra, Philip Morris, Inc., acquired the stock of Seven-Up Co.
through its wholly owned subsidiary. We were called on to
determine the value of the intangible assets of Seven-Up Co. In
doing so, we determined that the residual method was
inappropriate, because a control premium had been paid. We noted
that the control premium represented a payment for voting
control, over and above the value attributable to the underlying
assets. We concluded that the amount of the control premium was
the price paid in excess of the trading price prior to the
announcement of the acquisition. Id. at 628-632. We found that
Philip Morris, Inc., was an over-anxious purchaser who had not
obtained adequate information about Seven-Up Co. or conducted a
due diligence investigation of Seven-Up Co. However, we went on
to value the intangibles using the excess earnings approach,
which yielded a value slightly different from the aggregate
trading value. Although we used the aggregate trading value to
validate the reasonableness of our determination under the excess
earnings approach, we did not hold that the aggregate trading
value was determinative of the aggregate value of the underlying
assets. Id. at 638-639.
In Estate of Brownell v. Commissioner, supra, we were called
on to determine the value of unregistered stock of Pope & Talbot,
Inc., for estate tax purposes. We did not determine the value of
the underlying assets and expressed no opinion as to the
relationship between the trading value of the stock and the value
of the underlying assets. Accordingly, we find this case
inapposite.
Page: Previous 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 NextLast modified: May 25, 2011