Ina F. Knight - Page 18




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          breakup value.  However, the Knight family partnership is not a               
          conglomerate public company.                                                  
               Conklin cites Shannon Pratt’s definition of a portfolio                  
          discount7 in estimating the portfolio discount to apply to the                
          assets of the partnership.  A portfolio discount applies to a                 
          company that owns two or more operations or assets, the                       
          combination of which would not be particularly attractive to a                
          buyer.  See Estate of Piper v. Commissioner, 72 T.C. 1062, 1082               
          (1979).  The partnership held real estate and marketable                      
          securities.  Conklin gave no convincing reason why the                        
          partnership’s mix of assets would be unattractive to a buyer.  We             
          apply no portfolio discount to the assets of the partnership.                 
               2.   Lack of Control and Marketability Discounts                         
               Conklin concluded that a lack of control discount applies.               
          He speculated that, because the partnership invested a large part             

               7  Pratt et al., Valuing a Business, The Analysis and                    
          Appraisal of Closely Held Companies 325 (3d ed. 1996):                        
               The concept of a ‘portfolio’ discount is a discount for                  
               a company that owns anywhere from two to several                         
               dissimilar operations and/or assets that do not                          
               necessarily fit well together.  Many private companies                   
               have accumulated such a package of disparate operations                  
               and/or assets over the years, the combination of which                   
               probably would not be particularly attractive to a                       
               buyer seeking a position in any one of the industries,                   
               necessitating a discount to sell the entire company as                   
               a package.  Research indicates that conglomerate public                  
               companies tend to sell at a discount of about 10 to 15                   
               percent from their breakup value, although the                           
               relationship is not consistent from company to company                   
               or necessarily over time.                                                





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