Buy-sell agreements are critical corporate documents. I’ve said that many times and in three books on the topic. This post is about a case in which the parties did not have a buy-sell agreement. They were involved in litigation over the buyout of one 50% owner (not in management) by the other (in management). There was a trial and, following the trial, a private settlement. I was involved in the case and so now am providing an analysis of the case. The text of the analysis begins:
After several years of litigation involving a number of hearings and trials on various issues, a trial to conclude the collective fair value of a group of related companies known as the AriZona Entities occurred.
The Court’s decision in the AriZona matter was filed on October 14, 2014. I have not written about the AriZona matter because I was a business valuation expert witness on behalf of one side. The parties recently closed a private settlement of the matter, so there will be no appeal.
I certainly agree with your analysis, especially regarding the DLOM and minority discount application. An intereting question for the longer term may be the fact that the non-operating 50% shareholder, who in this case was the moving party, was greatly disadvantage by that position. i.e. 50% ownership value was not equitably developed by the process due in part to this different relationship with the operating entity. This observation would lead to the conclusion that management-place must carry a “hidden” keyman discount of an unusual size to reconcile the court’s position with “sound valuation analysis”. One might think that this effective result is grossly at odds with the fair value standard and the court’s charter to seek equitable treatment of all parties based on the specific facts of the case.