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The initial Lax report concluded that a 40-percent
marketability discount was appropriate even for a controlling
interest in a company because of the substantial time and expense
required to sell an interest in the absence of an established
market. For instance, Mr. Lax noted that the sale of an interest
in Belle Fourche would require preparation of a selling
memorandum and audited financial statements, location of a buyer,
drafting of legal documents, and coordination of financing
arrangements.
The final Lax report disclaimed the initial Lax report’s
conclusions and did not apply a marketability discount in valuing
Dave True’s 68.47-percent interest in Belle Fourche. Mr. Lax
explained that there was no empirical evidence suggesting that a
marketability discount would apply to an interest of greater than
50 percent. In fact, AA’s research showed that in many cases,
buyers placed a premium on control that fully offset the
illiquidity problems identified in the initial Lax report,
thereby resulting in a net premium.
c. Respondent’s Position
Respondent relied on Mr. Lax’s final conclusions to argue
that a marketability discount would not apply to Dave True’s
controlling interest in Belle Fourche valued as of June 4, 1994.
However, respondent allowed a 10-percent marketability discount
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