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b. Whether the Value of Burndy-Japan Stock Owned by
Burndy-US Was Greater Than 50 Percent of the Value
of the Blocks of Stock Held by All Shareholders
Petitioners contend that the value of Burndy-Japan stock
owned by Burndy-US was more than 50 percent of the value of the
three blocks of stock owned by its three shareholders.
Petitioners contend that a control premium applies in valuing the
Burndy-Japan stock owned by Burndy-US because Burndy-US owned 50
percent of the stock and controlled Burndy-Japan during the years
in issue. Similarly, petitioners contend that a minority
discount or discount for lack of marketability applies to
Furukawa’s and Sumitomo’s holdings.18
We find the testimony of respondent’s experts, Bajaj and
Alan C. Shapiro (Shapiro), about the rationale for applying
control premiums and minority discounts to be useful in analyzing
this issue. They testified that a premium applies in valuing a
large block of stock if the holder of that block has the power to
extract private benefits that are disproportionate to benefits
available to minority shareholders (private benefits analysis).19
18 Petitioners do not state the extent of the control
premium, minority discount, or discount for lack of
marketability. Rather they contend that any control premium,
however small, would cause Burndy-US to own more than 50 percent
of the value of Burndy-Japan stock.
19 Barclay & Holderness, Private Benefits From Control of
Public Corporations, 25 J. Fin. Econ. 371, 374 (1989), lists
private benefits such as higher salaries for individual
stockholders, below-market transfer prices for corporate
(continued...)
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