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opines that a “larger illiquidity and private company discount”
always applies to a minority shareholding of stock than to a
control shareholding of that same stock because the minority holder
does not have the same access to information and ability to create
liquidity as a control holder has. In this case, because the
acquisition price includes the discount for lack of marketability,
we were, and remain, of the opinion that it is more appropriate to
account for any lack of marketability attributable to the minority
interest in the minority discount we apply, which for lack of a
better term we have referred to as the combined discount.
Mr. McGraw, in setting his discount rate under his discounted
cashflow analysis, attributed 6 percent to the individual risk,
described by him as the limited number of 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. Mr. McGraw’s individual risk reflects lack of
marketability specifically related to decedent’s minority interest.
We have increased the minority discount by 6 percentage points to
reflect this additional lack of marketability.
Mr. Hanan’s discounted cashflow analysis setting Mr. DeJoria’s
compensation at $2.5 million, resulting in a value of $227 million,
reflects a control value of the enterprise. His analysis setting
Mr. DeJoria’s compensation at $12 to $17 million, resulting in an
enterprise value of $155 million, reflects lack of control.
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