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Mr. Lax applied EBDIT, EBIT, and pre-tax earnings (EBT) multiples
to Belle Fourche’s financial results for the 12-month period
ending May 31, 1994. The initial Lax report did not disclose the
selected guideline company multiples, Belle Fourche’s financial
fundamentals, or the weight assigned to each multiple to arrive
at total equity value.
The initial Lax report concluded that the fair market value
of Belle Fourche’s equity as of June 3, 1994, on a marketable
controlling basis, was $10 million, which included a 25-percent
control premium. According to the report, the premium was based
on the specific control features of the subject interest (e.g.,
control over the company’s distributions, assets, and management
decisions) and on public market acquisition transactions.
As described in more detail later, the initial Lax report
applied a 40-percent marketability discount to arrive at a
nonmarketable controlling value for the 68.47-percent interest of
$4,108,200 as of June 3, 1994.
Similarly, the final Lax report used the guideline company
method and the same public company comparisons as the initial Lax
report. However, Mr. Lax stated that he did not compute an
entity value for Belle Fourche in the final Lax report. Instead,
he purported to value the specific 68.47-percent interest without
first deriving the total equity value of Belle Fourche on either
a controlling or a noncontrolling basis.
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