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June 2017 | Issue 86 Background Constellis Group,  Inc. is a private security firm.  In December 2013, the Company formed an Employee Stock Ownership Plan (“ESOP”), which purchased 100% of Constellis’s voting stock.  Wilmington Trust NA was named Trustee of the ESOP.  Less than a year after the ESOP was created, the ESOP sold all […] More...


March 2017 | Issue 85 Introduction Richard and Steven Parker are brothers who ran a flower business in Scotch Plains, New Jersey.  Richard is the President of Parker Interior Plantscapes (“PIP”), which installs and services plants and flowers in commercial settings.  Steven is the President of Parker Wholesale Florists (“PWF”), which is a garden center.  […] More...

Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

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Marketability Discount Upheld in New York Fair Value Opinion

January 2013 | Issue 62

In a recent opinion, the NY Appellate Division, First Department held that it was appropriate to apply a discount for lack of marketability (DLOM) in determining the statutory fair value of a real estate holding company (Giamo v. Vitale, 2012 NY Slip Op 08778 (1st Dept Dec. 20, 2012)). The case involved two corporations that owned Manhattan apartment buildings and a parcel of land.  The real estate had been valued by the parties’ real estate experts at about $85 million.

The Lower Court’s Opinion

A lower court had rejected the application of a discount for lack of marketability in valuing the shares on the grounds that the real estate portfolio had unique attributes rendering shares in the holding companies to be readily marketable   (Giamo v. Vitale, Supreme Court, New York County (Aug. 26, 2011)).

The Purchaser’s valuation expert argued that the court should adopt a 20% discount for lack of marketability, based on restricted stock studies, acquisition discount studies, merger arbitrage spreads and the “build up” method, which estimates transaction costs and the time required to effect a stock sale.

The Seller asserted that there was no argument presented that the holding company shares were any less marketable than their underlying assets.  Furthermore, a DLOM was already incorporated in the exposure-to-market assumptions imbedded in the real estate appraisals. Therefore there was no need to apply it again.

The Appellate Court’s Opinion

The appellate court came down on the side of the Purchaser, concluding that the trial court “erred … in assessing that the marketability of the corporations’ real property assets was exactly the same as the marketability of the corporations’ shares.”  The court continued; “while there are certainly some shared factors affecting the liquidity of both the real estate and the corporate stock, they are not the same.  There are increased costs and risks associated with corporate ownership of the real estate…that would not be present if the real estate was owned outright.  These costs and risks have a negative impact on how quickly and with what degree of certainty the corporations can be liquidated, which should be accounted for by way of a discount.”

In determining the size of the DLOM to apply, the court noted that various studies had supported a range of from 8% to 30%.  The court concluded “we find that the build up method, which makes calculations based on expected projected expenses of selling a company holding real estate, best captures the DLOM applicable in this particular case. We conclude that a 16% DLOM… is appropriate and should be applied.”

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction(s) or tax-related matter(s) addressed herein.