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appropriate marketability discount in this case can be inferred
from the illiquidity cost associated with private placements.
Although we reject Dr. Bajaj’s quantification of the
appropriate marketability discount in this case, we look to the
data from his private placement study for two reasons. First, we
believe that, given MIL’s status as an investment company,41 what
Dr. Bajaj refers to in the context of private placements as
assessment and monitoring costs would be relatively low in the
case of a sale of an interest in MIL. That belief, coupled with
Dr. Bajaj’s persuasive argument that such costs are relatively
high in unregistered private placements, leads us to conclude
that a sample consisting entirely of unregistered private
placements would be inappropriately skewed. Second, only Dr.
Bajaj’s study (and not the other private placement studies on
which he relies) covers the period (1990-1995) immediately
preceding the valuation date.
In Table 10 of the report constituting his direct testimony,
Dr. Bajaj separates the 88 private placements in his sample into
three groups according to the level of discounts (i.e., the 29
lowest discounts, the middle 29 discounts, and the 30 highest
discounts). Presumably, the “low” category is dominated by
41 On the valuation date, 65 percent of MIL’s assets
consisted of marketable securities and an additional 30 percent
consisted of real estate limited partnership interests, subject
to well-known and relatively routine appraisal techniques (such
as cashflow analysis or market multiple methods).
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