Valuation for Arbitration

Author: Mark Kantor
Publisher: Kluwer Law International
ISBN: 9789041127358
Published In: June 2008
Format: Hardback , 428 pages
Jurisdiction: International ? Disclaimer:
Countri(es) stated herein are used as reference only

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Contents

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This book provides a clear understanding of the nuts and bolts of valuation approaches for business investments, including market, income and asset-based methods. It reviews tools that arbitrators may employ to reach their final compensation assessment on a principled basis. The book’s many practical recommendations explore the decision making processes entailed in three central aspects of the arbitrator’s role:

• advance planning to enhance understanding of expert valuation evidence;

• identification of “apples-to-oranges” miscomparisons; and

• recognition of the true comparability between the business at issue and other examples offered in the expert evidence.

The presentation focuses not only on the legal standards applicable to the valuation (full or adequate compensation, reparations, restitution, actual loss, fair market value, fair or reasonably equivalent value, lost profits, etc.), but also on the informed judgment and reasonableness that must enter into the process of weighing the facts of each case and determining its aggregate significance. The book considers common valuation methods like discounted cash flows, adjusted present values, capitalized cash flows, adjusted book values and comparable sales and transactions. Additionally, it addresses means for arbitrators to assess expert valuation evidence in complex business investment disputes.

"Best book 2008 of the OGEMID awards!"

A great contribution to the field" and a "treasure of insight and explanation." --- Jan Paulsson

Chapter 1 Valuation for Arbitration: An Introduction;

Chapter 2 Basic Valuation Approaches.

I. Three Approaches.

II. Actual Transaction Price.

III. Limits on Forward-looking Compensation.

IV. Utilizing Several Valuation Methods.

V. Market Value.

VI. Contract-Based Damages.

VII. Diminution of Value and Business Interruption Damages.

VII. Sunk Investment Costs and Criticism of Market Value.

IX. No Market Exists.

X. Subsequent Events.

XI. Common Legal Limits to Compensation.

1. Market Value Too Speculative.

2. Not a Going Concern.

3. Foreseeability.

4. Lack of Causation and Contributory Fault.

5. Burden of Proof.

6. Mitigation.

7. Unjust Enrichment and Other Equitable Considerations.

Chapter 3 Comparability

I. Timing.

II. Public vs. Private.

III. Product and Services Markets.

IV. Geographic Location.

V. Size. Capital Structure.

VII. Debt and Non-cash Consideration.

Chapter 4 Important Components of DCF Valuations.

I. Discount Rates.

1. Build-Up Procedure.

2. Weighted Average Cost of Capital (WACC).

3. Capital Asset Pricing Model (CAPM).

4. Weighting the Debt and Equity Capital Costs.

5. Contemporaneous Business Forecasts.

II. Direct Equity vs. Indirect Equity (Total Invested Capital) Methods.

III. Projection Periods.

IV. Terminal Value.

V. Taxes.

VI. Year-end Conventions vs. Mid-Year Convention.

VII. Enterprise Value, Equity Value and Business Segments.

VIII. Double-Counting.

IX. Specific Forecast Items: Non-Operating Assets, Interest, Foreign Exchange Rate and Minority Interests as Illustrations.

1. Non-Operating Assets.

2. Interest Rates.

3. Foreign Exchange Rates.

4. Minority Interests.

Chapter 5 Adjusted Present Value (APV) Method.

Chapter 6 Capitalized Cash Flow ( CCF ) Method

I. Introduction

II. Market Multiples

III. Time Periods

Chapter 7 Asset-Based Methods, Particularly Adjusted Book Value

I. Introduction

II. Historical Amounts, Intangibles and Goodwill

III. Liabilities

IV. Valuations by Categories

V. Double-Counting

VI. Liquidation Value

Chapter 8 Discounts

I. Minority Discount ( DLOC )

II. Discount for Lack of Marketability ( DLOM )

III. Overlap

Chapter 9 Checklist for Interest

I. Legal Sources of Interest Calculations

II. Currency

III. Fixed or Floating?

IV. Day Count

V. Compounding

VI. Beginning Dates for Interest Accrual

VII. Miscellaneous Questions

Chapter 10 What can the Careful Arbitrator do?

I. Advance Planning

II. Ranges of Estimates; Audit Trial

III. Standards of Conduct for Party-Appointed Experts

IV. Expert Exchanges

V. Obtaining the Financial Models

VI. The Tribunal-Appointed Expert Appendices:

Appendix 1 - List of Current IVSC Members, Observers and Correspondents.

Appendix 2 - AICPA Statement on Standards for Valuation Services No. 1: Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset (SSVS No. 1), including the International Glossary of Business Valuation Terms.

Appendix 3 – The Chartered Institute of Arbitrators Protocol on Instructions to Party-Appointed Expert Witnesses.

Appendix 4 – The Chartered Institute of Arbitrators Guideline 10 on the Use of Tribunal–Appointed Experts, Legal Advisers and Assessors