- 23 -
Another factor which makes Mr. Heebink’s analysis less
persuasive is his application of a minority interest discount to
the total business enterprise value he determined in his
analysis. A significant component of this total business
enterprise value is attributable to his market comparable
analysis. Applying a minority interest discount to the market
comparable analysis, which already reflects transactions
involving minority interests, is inappropriate. See Estate of
Mitchell v. Commissioner, T.C. Memo. 2002-98 (if the stock to be
valued by the market approach represents a minority interest, no
discount for the lack of control is applied because the method
reflects a minority interest).
We do not agree with respondent that Mr. Heebink’s
discounted cashflow analysis is entitled to no consideration. We
will consider Mr. Heebink’s valuation analysis, bearing in mind
the circumstances identified above, especially the fact that his
analysis significantly understated the value of HII stock in
making the erroneous adjustment for the alleged understatement of
reserves.23
22(...continued)
in valuing HII stock. However, we agree that it detracts from
the persuasiveness of Mr. Heebink’s conclusions.
23Mr. Heebink does not present an alternative valuation
which does not contain this adjustment; however, it is clear that
this adjustment, if corrected, would bring Mr. Heebink’s
conclusions considerably closer to those of Mr. Engstrom’s.
(continued...)
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