Share Valuation: Hypothesis and Reality

Statutes (Section 150 CGTA 1979 and Section 160 IHTA 1984) require holdings of unquoted shares be valued on the basis of the price they would get on the open market, with no buyers excluded. Since most shares are sold under the conditions of a restricted market as defined by the articles of the association, Inland Revenue will ignore evidence of the transaction details. Inland Revenue Shares Valuation Division does emphasize valuing minority holdings in profit-making companies by reference to their earnings and applying multiples derived from the experience of the stock market since the quoted market does represent the open market. However, a dividend yield-based approach for valuing a minority provides a more solid valuation because a dividend represents an ascertainable return to the hypothetical purchaser. In property and investment companies, the basis for valuing holdings is asset backing. Although many dispute possibilities exist, the Shares Valuation Division continues to give a fair hearing to valuation arguments.

Full text: Accountancy, Jul 1988

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Profit-taking pushes Dow down 10.44

Stock prices fell Tuesday as investors took profits following strong gains of the past two sessions. The Dow Jones industrial average fell 10.44 points to 2453.45. Broader indexes declined slightly. Losers beat gainers by 784 to 702 on the New York Stock Exchange, where volume was 173.1 million shares. Behind the market: Following a two-day surge that took the Dow up 81.01 points (3.4%), the Dow opened lower at the outset, falling 8 points on profit-taking. Selling continued through noon, when the Dow was off nearly 14 points. The Dow rallied by late afternoon, trimming the day's loss to 6 points by 3 p.m. before dropping a bit in the final hour of trading.

Full text: USA TODAY (pre-1997 Fulltext), May 17, 1989

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Stocks dip as traders start holiday

Stock prices declined moderately Friday in brisk trading before the July 4th holiday weekend. The Dow Jones industrial average fell 10.13 to 2,131.58; for the week, the average dropped 11.38 points. Robert Walsh, a money manager in Houston for Jenswold, King & Associates, said two factors accounted for yesterday's decline. "First, there was selling pressure created by profit-taking by institutions, which normally occurs immediately after the end of a quarter where stock prices have risen," he said. "Secondly, there was an absence of any meaningful new buying because of the preholiday atmosphere."

Full text: Star Tribune, Jul 2, 1988

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Investing the Alaskan Project Cash Flows: The Sohio Experience

A 1979 article focused on how Sohio (Standard Oil Co.) arranged nearly $6 billion in external financing needed for an Alaskan project from 1969 to 1977. This was the result of an agreement between Sohio and British Petroleum (BP) that involved a swap of BP's US reserves for an eventual 55% ownership share of Sohio. However, an account of how Sohio invested the huge cash flows generated by the sale of Alaskan project reserves from 1978 to 1986 is a case study in certain shortcomings of the corporation in efficient utilization of internally generated capital. Many other oil companies experienced some degree of economic mishap during the 1980s, but Sohio's performance in particular was marred for reasons that include: 1. Company management was inexperienced. 2. BP's majority ownership served to make Sohio especially sensitive to political pressures. 3. Sohio's initial long-term commitments of cash flow were needed at the time of the greatest political pressures on the oil industry.

Full text: Financial Management, Summer 1988

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Share Valuation: Difficulties and Disputes

When creating the articles of incorporation of a private company, specifications should be included regarding the evaluation of shares in the event of disposal. Further, in a partnership agreement, provisions should be made in regard to the treatment of goodwill and whether assets are to be revalued in the event the partners' relationship deteriorates. The data or method of valuation is not defined. The case law regarding the valuating of shares in private companies occurs primarily in the following areas: 1. where it is claimed that an event has occurred relevant to an obligatory share transfer clause in the company's articles, and 2. where a petition for unfair prejudice has been filed under Section 459. Litigation in this area of case law is extremely expensive; thus, the additional detailed provisions are wise even though financial consequences can arise.

Full text: Accountancy, Jul 1988

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