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relies primarily on data from the restricted stock approach to
support a marketability discount of 35 percent, although he also
contends that data from the IPO approach strongly support that
level of discount. Dr. Bajaj relies on a variant of the
restricted stock approach, which we shall refer to as the
private placement approach, to support a marketability discount
of 7 percent.
b. Rejection of IPO Approach
Dr. Bajaj argues that the IPO approach is flawed both in
concept and in application. His principal criticism is that the
IPO premium (over the pre-IPO private market price) may reflect
more than just the availability of a ready market. He believes
that buyers of shares prior to the IPO are likely to be insiders
who provide services to the firm and who are compensated, at
least in part, by a bargain price. More importantly, he believes
that a pre-IPO purchaser demands compensation (in the form of a
lower price) for bearing the risk that the IPO will not occur or
will occur at a lower price than expected. His opinion is:
“[T]he IPO approach probably generates inflated estimates of the
marketability discount. Consequently, it is of limited use in
estimating the value of closely held firms.”
In his rebuttal testimony, Mr. Frazier fails to offer any
rebuttal of Dr. Bajaj’s criticism of the IPO approach. Mr.
Frazier’s support for the IPO approach consists only of his
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