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conducted by H. Calvin Coolidge that compared the actual sales of
minority interests in closely held corporations to the reported
book value of those corporations. The Coolidge study found an
average discount of 39.9 percent and a median discount of 39
percent against book value. The third article cited by IPC,
Pratt, “Discounts and Premia”, in Valuation of Closely Held
Companies and Inactively Traded Securities 38 (Dec. 5, 1989) (on
file with The Institute of Chartered Financial Analysts),
summarized several empirical studies regarding both minority and
marketability discounts. By analyzing control premium data,
Pratt found an implied minority discount of approximately 33
percent for 1980 and 1981 in the studied transactions. Based on
the cited articles, IPC determined that a 30-percent minority
interest discount was appropriate.
We do not believe that any control premium is warranted. We
reject respondent's argument that a swing vote potential existed,
since we have found that the transferred shares did not have
swing vote potential. We are required to value the shares as if
they were transferred to a hypothetical buyer and are not
permitted to take into account the circumstances of the actual
transferee in valuing the shares.
b. Marketability Discount
Both petitioners and respondent acknowledge the necessity of
applying a marketability discount in the valuation but disagree
as to the proper percentage. A lack of marketability discount
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