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to the net asset value of MIL’s assets to determine the fair
market value of the gifted interest. Such a discount is commonly
referred to as a “marketability discount”. The marketability
discount analyses of Mr. Frazier and Dr. Bajaj differ from their
minority interest discount analyses in that they seek to identify
a single, “entity-wide” discount rather than a weighted average
of discount factors specific to each category of assets held by
MIL. The parties disagree as to the amount of that discount.
2. Traditional Approaches to Measuring the Discount
a. In General
Mr. Frazier and Dr. Bajaj agree that empirical studies of
the marketability discount fall into two major categories. The
first major category, the IPO approach, consists of studies that
compare the private-market price of shares sold before a company
goes public with the public-market price obtained in the initial
public offering (IPO) of the shares or shortly thereafter. The
second major category, the restricted stock approach, consists of
studies that compare the private-market price of restricted
shares of public companies (i.e., shares that, because they have
not been registered with the Securities and Exchange Commission,
generally cannot be sold in the public market for a 2-year
period)32 with their coeval public-market price. Mr. Frazier
32 See 17 C.F.R. sec. 230.144(d)(1) (1996). The required
holding period was shortened to 1 year in 1997. See 62 Fed. Reg.
9242 (Feb. 28, 1997).
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