1. How subjective was Judge Chandler’s opinion with respect to:
a. Rejecting the WPG formula?
b. Rejecting comparable transactions analysis?
c. Accepting the Morningstar/Ibbotson risk premiums?
d. Accepting Ruback’s small firm premium and rejecting Reilly’s?
e. Rejecting the specific-risk premium?
f. Rejecting the Subchapter S conversion premium?
2. Valuation methods described in this case are widely used in impairment tests, fairness opinions, economic damage calculations, and the purchase and sale of securities, entire companies, and other assets. How subject to criticism are those methods?
3. What, if anything, could a valuation expert do to lessen the criticisms raised by Judge Chandler and prepare to defend against similar criticisms raised by most cross-examining attorneys?
4. Are the risk premiums provided by Morningstar/ Ibbotson more objective than the comparable transactions analysis used by Ruback? Explain.
Sunbelt Beverage, a wholesale liquor distributor, was a division of McKesson Corporation until 1988, when McKesson decided to exit the industry. McKesson sold a majority of Sunbelt’s stock to a group of investors that included the private investment firm Weiss, Peck, and Greer (WPG); several members of the Merinoff family, who had been involved in the wholesale alcohol distribution industry for at least three generations; and former McKesson vice chairman Ray Hermann. In 1991, Sunbelt acquired certain alcohol distribution rights in Florida held by Jane Goldring, whose family had been in the wholesale liquor business for four generations (the shares were owned by Ms. Goldring but controlled by her husband through an irrevocable trust). (Sometimes the court case refers to Goldring as “she,” sometimes as “he.” Sometimes the court refers to “the Merinoffs” and sometimes to “Merinoff.” This case uses the court terminology in both instances.) In exchange, Goldring received 54,000 shares of Sunbelt. In 1994, WPG sought to sell its controlling interest in Sunbelt, and McKesson wished to sell its remaining interest. WPG asked Goldring if he was interested in acquiring the majority interest held by WPG and McKesson. Goldring declined but expressed an interest in purchasing some number of additional Sunbelt shares. WPG then contacted members of the Merinoff family, who agreed to acquire the shares owned by WPG and McKesson, except for the additional shares Goldring wished to acquire.