More than a decade ago, I was writing my first book on buy-sell agreements. While I was working on it, a long-time friend, let’s call him William, who had significant knowledge about the value of businesses, called me to relay a true story about how one buy-sell agreement ended very badly for his family.
About three years ago, I was interested in buying a smartwatch, and the Fitbit offerings were not very appealing. Not to be snobbish, but Fitbit simply did not have a watch product that I was willing to wear every day. So I bought first generation Apple Watches for my wife, Cathay, and me about three years ago. Along the way, there was a celebration of something, and I bought a second generation watch for Cathay. My watch, after a couple of fixes during warranty, performed well — until it quit performing— with a bit of help from Apple.
In a 1983 case, Blasingame v. American Materials, Inc., 654 S.W. 2d 659 (Tenn. 1983), the Supreme Court of Tennessee adopted what is called the “Delaware Block” method for determining the fair value of shares in dissenters’ rights cases in Tennessee. This method, considered alone, was already outdated by precedent case law in Delaware when Blasingame was issued. However, in the recent Athlon Sports Communications case, the Tennessee Supreme Court finally brings Tennessee dissenters’ rights appraisal determinations more in line with the majority of states.
The Tax Cut and Jobs Act of 2017 lowered the marginal corporate federal tax rate to 21%, and all of a sudden, things just aren’t the same anymore. At first blush, the impact of the recent tax cut is straightforward. Lower taxes mean higher after-tax cash flows, which should translate into higher values for businesses. But how much higher? Value is a function of expected cash flows, expected risk, and expected growth. While expected cash flow (after-tax) will be rising following the corporate tax cut, what happens to expected risk and expected growth?