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prospective purchasers for the stock due to the size of the
investment, the minority interest status of the block of stock, and
the control exercised by Mr. DeJoria. The individual risk reflects
lack of marketability. We find that increasing the discount rate
to reflect this “individual risk” in addition to applying a large
separate discount for lack of marketability results in an
undervaluation of the stock.
We are of the opinion that here the comparable companies and
discounted cashflow methods (which are theoretical valuation
methods) are not appropriate. We did not use them because (1)
there were real-world acquisition offers by Minnetonka and
Gillette, and (2) the discounted cashflow and comparable companies
analyses, as determined by the estate’s experts, produced
theoretical values for JPMS that were substantially less than these
real-world acquisition offers.
While listed market prices are the benchmark in the case of
publicly traded stock, recent arm’s-length transactions generally
are the best evidence of fair market value in the case of unlisted
stock. See Estate of Andrews v. Commissioner, 79 T.C. at 940;
Duncan Indus., Inc. v. Commissioner, 73 T.C. 266, 276 (1979);
Estate of Branson v. Commissioner, T.C. Memo. 1999-231.
In Estate of Mitchell v. Commissioner, T.C. Memo. 1997-461, we
began our analysis by placing a $150 million value on JPMS at the
moment immediately prior to Mr. Mitchell’s death. In determining
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