Hi everyone,<\/p>\n\n\n\n
Hope all is well considering the global economy\u2019s downturn as a result of the Coronavirus. Yet, business activity goes on along with many court cases. Here is a case worth briefly talking about. In the case of Manichean Capital, LLC v. SourceHOV Holdings, Inc., 2020 Del. Ch. LEXIS 38, the Delaware Court of Chancery recently agreed with the parties\u2019 experts that a discounted cash flow analysis was the only way to determine fair value<\/strong> while rejecting, unequivocally, the company expert\u2019s novel approach to calculating beta. Here is the kicker, the court stated that the expert\u2019s willingness \u201cto go out on a limb to support a forensic valuation opinion\u201d raised serious questions about his entire testimony. While notwithstanding recent case law from the Delaware Supreme Court that embraced the use of market indicators to determine fair value, the court and the parties agreed that here there was no reliable market evidence because the company\u2019s stock was not publicly traded and company managers made no effort to undertake a proper sales process. As a result, the court approved of the DCF approach. The court noted the \u201cmost consequential point of disagreement\u201d was over how to calculate the company\u2019s equity beta. The petitioners\u2019 expert, using a generally accepted method, calculated beta indirectly, based on 19 publicly traded comparable companies, the court emphasized. In contrast the company\u2019s expert said there were no comparable companies and that he could not use \u201cindirect or regression-based betas.\u201d Therefore, he calculated beta \u201cdirectly by looking to market evidence\u201d of the company\u2019s debt.<\/strong> The court observed the debt was not publicly traded; these were private loans that traded only by appointment. The expert admitted he came up with this approach for this case. He had not used this method before, nor had he seen this method used before, but hoped it would \u201ccatch on\u201d in the future. The court, said the company\u2019s expert was \u201cusing the courtroom as an incubator for his untested beta calculation experiment.\u201d Bottom line- if you want to test a new method, either: a) first have it published in referred journals, b) discuss it during conferences, and\/ or c) gain support from valuation heavyweights. Do not use the courts as incubators!! Until next time\u2026\u2026..<\/p>\n","protected":false},"excerpt":{"rendered":" Hi everyone, Hope all is well considering the global economy\u2019s downturn as a result of the Coronavirus. Yet, business activity goes on along with many court cases. Here is a case worth briefly talking about. In the case of Manichean Capital, LLC v. SourceHOV Holdings, Inc., 2020 Del. Ch. LEXIS 38, the Delaware Court of […]<\/p>\n","protected":false},"author":10,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-25999","post","type-post","status-publish","format-standard","hentry","category-joels-corner"],"acf":[],"aioseo_notices":[],"yoast_head":"\n