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characteristics, and applying them to Belle Fourche’s actual
earnings data. Similarly, the book value approach analyzed rates
of return on common stock equity and price-to-book value ratios
of comparable public companies and applied them (after
adjustments) to Belle Fourche’s actual book value at the
valuation date. After assigning more weight to the earnings
approach, SRC derived a freely traded value for Belle Fourche
stock of $120 per share. SRC explained that the freely traded
value “would have been * * * [the] fair market value on the
valuation date * * * had there been an active public market for
the stock at that time.”
SRC opined that, because Belle Fourche lacked a public
market for its stock and the transferred shares represented
minority interests, a willing, knowledgeable buyer would demand a
discount from the freely traded value. While SRC examined
average marketability discounts15 used in public company
transactions, it did not use this information in its analysis.
Instead, SRC concluded that, because the minority interest
shareholders (the True children) could never look forward to a
public market and were limited to the sales price fixed in the
15SRC described the transferred interests’ lack of
marketability and control as being “infirmities” that must be
accounted for in any sale to a hypothetical purchaser. However,
SRC’s analysis seemed to blend the two concepts, and, ultimately,
referred only to a marketability discount and not to a minority
discount.
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