Shares valued on a minority or control basis

[Guest John Nelson]

Should individual ESOP shares be valued on a minority interest basis, even though the ESOP shares in the aggregate represent control of the company? I've always considered that to have been the conclusion of the court in the U.S. News case, but it's also my understanding that most valuation experts argue that the ESOP should be treated as one shareholder.

Is there a general consensus out there on this question? Thanks.

[RLL]

Hi John ---

If the ESOP acquired (paid for) the shares at a controlling interest price, the shares should continue to be valued on that basis .... otherwise the participants would not receive benefits which reflect the "control" that the ESOP used trust assets to pay for. Remember that ERISA section 404(a)(1) requires fiduciaries to use ESOP assets "solely for the purpose of providing benefits....."

If the ESOP's "control" block of shares was acquired at minority interest price(s), the shares may continue to be valued by the fiduciaries on that basis for the purpose of determining individual participants' benefits. This is what happened in the U.S. News case.....the profit sharing plan there never paid controlling interest prices for the shares it acquired.

[Guest John Nelson]

RLL:

Good counsel. Thanks for your help.