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Is there a difference? Fair value vs. Fair Market Value...value is value right? Wrong? Standards are critical to clearly defined valuation parameters.Tackling valuation problems in the world of corporate finance and dissenting shareholders is often a tightrope driven by the valuation standard. Shareholders, managers and board members are all concerned about what is "fair" and how to reduce potential liability.

A recent Colorado court case highlights the importance of clearly defining the valuation standard on the front end of an engagement. In the case of Kim v. The Grover C. Coors Trust (March 8, 2007), a minority shareholder alleged a breach of fiduciary duty by directors for approving a $100 million sale of preferred stock to raise badly-needed capital. The court determined that the fair value standard was not appropriate, which would have involved a dissenters' rights action and precluded the application of discounts to minority interests (Model Corporation Business Act). Instead, the court concluded the fair market value standard should be applied, which meant that the case involved "the question of whether a transaction was fair". The fair market value standard in this context allows for the consideration of discounts. What is the difference? Well in the Kim case the discounts were 15% to 20% for marketability and the difference in whether the transaction was "fair".

Category(s): Fair Value Accounting
Posted by Brett Suchor at 07:45 PM | Permalink | Comments (0) | TrackBacks (0)