Various shareholders of a $500 million family-owned snack food manufacturer/ distributor became involved in a shareholder oppression matter. The company’s operations were run through various related entities, each with different ownership among family members. One of the biggest issues in the case was alleged inappropriate transfer pricing among the companies on the manufacturing side of the business and on the sales/brand side of the business.
The defendants engaged Stout to determine the fair value of the manufacturing company. We concluded that the company was essentially a contract manufacturer, with minimal intangible value given that the trademarks, tradenames, sales force, and other material intangible assets were all owned by another entity and given that the company essentially had only one customer. Our real estate and personal property valuation experts analyzed the tangible assets to establish a minimum value of the company, exclusive of any intangible value. In addition, our forensic accountants investigated alleged inappropriate transactions and established proper transfer pricing among the entities to develop an appropriate pro forma earnings stream on which to conduct our valuation analyses.
Stout’s expert testified at trial on behalf of the defendant and concluded on a fair value of the subject interest that was materially lower than the fair value put forth by the plaintiff’s expert, largely based on his testimony about the risk associated with the company’s extreme customer concentration. The court agreed with Stout’s expert’s analysis and accepted his valuation conclusion of $16.5 million for the subject interest.