- 40 -
of control problem.14 Thus, we view Drs. Bajaj and Spiro in
basic agreement as regards the need for a discount for lack of
control, which we view as a minority status discount.
(2) Discount for Brown-Forman’s ROFR
Both experts agree that some discount for the ROFR is
warranted. Dr. Spiro includes the ROFR as part of his basic
15-percent liquidity discount, Dr. Bajaj as part of his
additional 10-percent discount for both the ROFR and the minority
interest’s lack of control.
Dr. Bajaj views the ROFR as a much more serious impediment
to marketability than does Dr. Spiro. He argues that, because of
its ROFR, Brown-Forman is always a potential bidder for an
available block of Korbel stock. He further argues that, because
it had been the sole distributor of Korbel champagne and brandy
for a number of years, Brown-Forman knows more about Korbel than
any potential outside bidder. As a result, any other outside
bidder would have to expend a great deal of effort and money to
even approach Brown-Forman’s knowledge level concerning Korbel,
without which it may offer too little and risk losing out to
Brown-Forman, or too much and risk making a bad deal. Also,
because Brown-Forman has a special interest in retaining its sole
14 Dr. Spiro also states that, as an S corporation, Korbel
is subject to several restrictions impairing liquidity, including
restrictions on the number and type of persons that can be
shareholders. Nevertheless, he views S corporation status as a
benefit and fails to quantify the relevant advantages and
disadvantages.
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