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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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