It's a shareholder buyout case where the trial court is required to decide the value of the minority shares.
I definitely agree with the Court of Appeal that the trial court got it wrong. There were three different appraisers, and each of these experts valued the shares at a totally different amount. One expert said $69,000, another said $150,000, and the third said $200,000.
The trial court "agreed" with the experts (?!) and decided to value the shares at the exact average of these three different figures; i.e., $139,666.67.
This was obvious error. You have to actually decide the case. Which means figuring out which of the witnesses is correct. You can't just "average" the competing results.
What the trial court did just seems crazy.
So I'm totally with the Court of Appeal on that.
But there's one part of the opinion I'm less sure about.
The Court of Appeals notes that "The Marcus and Forsyth appraisals discounted the
fair value of appellants' shareholder interest by 20 percent and
15 percent for lack of control." That's a pretty standard appraisal technique. Minority shares can't control the corporation, so they're worth less than shares that include control. Pretty basic corporate law.
But the Court of Appeal then says, citing a prior opinion from the Court of Appeal: "Section 2000, however, does not
permit a lack-of-control discount when determining the fair value
of a minority shareholder interest. The rule
justifying the devaluation of minority shares in closely held
corporations for their lack of control has little validity when the
shares are to be purchased by someone who is already in control
of the corporation. In such a situation, it can hardly be said that
the shares are worth less to the purchaser because they are noncontrolling."
Okay. I get that the prior case probably says that. But I don't understand why that's right.
To me, the minority shares are worth a discount to the minority owner because they don't include control. And the minority shares are worth a discount to the majority owner as well because they don't give him any control that he doesn't already have. There's no control bonus to anyone with minority shares: not the current owner, not the future owner, not anyone. Which is why they do -- and should -- trade at a discount.
It may well be that a prior case said what the Court of Appeal here says. But I don't understand why that's right. Or why the Court of Appeal here should follow that opinion. Which seems wrong to me.
No willing buyer will pay, nor will any reasonable seller expect to sell, minority shares for the same price as majority shares. Because the former includes control and the latter does not.
So I don't get why a discount isn't entirely appropriate. Especially since it seems that ignoring such a discount would give the minority shareholder a windfall -- a benefit that s/he would not receive in the actual marketplace for those minority shares.
Everything else in the opinion seems right. But not this part.
