- 32 -
petitioner's expert, Spiro selected certain financial ratios to
value the Savings shares. Placing primary weight on the price-
to-earnings ratio, secondary weight on the price-to-book ratio,
and little weight on the dividend yield measure, Spiro concluded
that the "indicated value" of a minority interest in Savings
would be $369 per share, if the shares were liquid and freely
traded.
Because the shares are not quickly convertible into cash,
Spiro applied a liquidity discount to the indicated value.15 To
determine the size of the liquidity discount, Spiro considered
several studies,16 and reviewed 19 opinions of this Court that
were decided after 1983 in which we found a discount separately
and specifically for either lack of marketability or restrictions
on transfer with respect to a closely held company. The
discounts in the studies and cases ranged from 10 to 45 percent.
15We note that in this case, a liquidity discount and a
discount for lack of marketability are conceptually
indistinguishable.
16Spiro relied on the following studies: Pratt, "Discounts
and Premia", Valuation of Closely Held Companies and Inactively
Traded Securities (1990); Maher, "Discounts for Lack of
Marketability for Closely Held Business Interests", 54 TAXES 562
(Sept. 1976); Moroney, "Most Courts Overvalue Closely Held
Stocks", 51 TAXES 144 (Mar. 1973); Emory, "The Value of
Marketability as Illustrated in Initial Public Offerings of
Common Stock", Bus. Valuation Rev. (Dec. 1986); and Emory, "The
Value of Marketability as Illustrated in Initial Public Offerings
of Common Stock (January 1994 through June 1995)", Bus. Valuation
Rev. (Dec. 1995).
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