- 31 -
additional considerations for a hypothetical buyer, however,
including:
(i) the potential need to buy out the 3% minority
shareholder, (ii) the need to terminate existing Johnco
management, (iii) the need to identify and retain outside
assistance to manage and, if appropriate, liquidate Johnco's
assets and (iv) the risk of costly litigation with Johnco's
minority shareholder.
Mr. Buck determined that the foregoing considerations and risks
could result in a 10-percent discount from the price a willing
buyer would pay if there were no minority shareholder
considerations.19 (We shall hereinafter refer to this discount
to reflect the presence of a 3- to 4-percent minority shareholder
as a nuisance discount.) Accordingly, Mr. Buck determined that
the fair market value of decedent's Johnco stock was $4.2
million.20
19 Because Mr. Buck assumed that decedent held 80,485
shares, or 97 percent, of the outstanding stock of Johnco on her
date of death, the remaining shares held by Andrew made him a 3-
percent shareholder under this assumption.
20 This figure reflects an average of the values calculated
by Mr. Buck under case B with a 10-percent discount, under Case B
without a discount, and under case A without a discount,
calculated as follows:
Case B with discount
0.97(0.90 x $4,600,000) = $4,000,000
Case B without discount
0.97($4,600,000) = $4,462,000
Case A without discount
0.97($3,800,000) = $3,700,000
Average = $4,200,000
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