FASB issues technical plan for 2Q/3Q 2007

The Financial Accounting Standards Board (FASB) will have a busy summer.  Its just-released Technical Plan—April 1, 2007 through September 30, 2007 reveals the FASB ’s continued focus on its convergence projects with the International Accounting Standards Board (IASB), including their joint plans to issue Exposure Drafts of proposed amendments to Earnings per Share in the second quarter of 2007; and a final Statement on Business Combinations: Applying the Acquisition Method and Noncontrolling Interests early in the third quarter. 

The FASB also expects to issue an Exposure Draft on its Conceptual Framework for Financial Reporting late in the third quarter, and continue its Private Company Financial Reporting initiative by holding the first meeting of the newly-formed Private Company Financial Reporting Committee (PCFRC) in May, 2007 (see the item below).

On the back burner: The Board plans no action on Statement 123, Share-Based Payment, until it moves further on its Financial Instruments: Liabilities and Equity project.  And despite recent rumors, the FASB has no immediate plans to revisit Statement 142, Goodwill and Other Intangible Assets, other than to provide guidance on renewable intangibles (see BVWire #55-1). To read the full, 40-page FASB Technical Plan, click here.

Inaugural meeting of PCFRC in May

The FASB and the American Institute of Certified Public Accountants (AICPA) recently embarked on a “major initiative” to improve the FASB’s standard-setting process by forming the Private Company Financial Reporting Committee.  “Specifically, the joint initiative sought constituent feedback on…whether the Board should consider differences in accounting standards for private companies within Generally Accepted Accounting Principles [GAAP],” says the Committee’s website, www.pcfr.org.   

More recently, according to the FASB’s Technical Plan, “the PCFRC’s primary objective is to provide recommendations to the [Board] based on agreed-upon criteria, primarily cost-benefit analyses, for specific differences in prospective and existing accounting standards for private companies.”  Last month, the PCFRC announced its 12-person membership, including its Chair, Judith O’Dell (O’Dell Valuation Consulting, LLC).  Next month, the Committee holds its inaugural meeting in Chicago, May 10-11, which is open to the public.  Contact Sharon Macey, smacey@aicpa.org

BVResearch: New, customized reports to drive your next deal

Over the past ten years, because of its access to deal-flow documents, Business Valuation Resources (BVR) has become the de facto provider of market transaction data to the business valuation profession. 

As a natural outgrowth, BVR launched its new research services division, BVResearch, which taps into our 9,700+ proprietary private company transactions and all-inclusive industry research. BVResearch Custom Reports allow BV analysts, M&A and private equity professionals, venture capitalists, investment bankers, CFOs, COOs, compliance officers and private wealth managers to deliver subject company research and buy/sell recommendations to their clients, partners and board members.  “Give us your subject company’s revenue range and industry, and we’ll deliver deal-based data”—in some cases with a 24-hour turnaround.

To learn more—and to download two sample Custom Reports—visit BVResearch.com.

Adding to the Daubert challenge: a lawyers’ consulting group

“Much of what we do is reign in exorbitant ‘expert’ damage assessments,” say the so-called “experts” at DaubertExpert.  “When a business entity fails…it is often pretty easy to spin together a little anecdotal evidence into a plausible story of the value of a firm, as it would have been, in the absence of the claimed wrong.  If the expert can make those numbers large enough, the fear of ruin can induce rational…defendants to settle largely nonmeritorious [sic] claims.  We offer a better alternative,” they add, “which is to evaluate the damages testimony early on, and when it is junk, exclude it.”  (And we thought only the judiciary had this power…)

Moreover, “Even when the damages testimony is not actual junk, we can still chip away at its hopeful assumptions more than enough to justify our fees, usually many times over, as can be demonstrated by the standard junk damages model.”  To read how the consultants profess to make a Daubert motion worth “10 million dollars,” click here.

How to demystify the millions at stake in an ESOP  

It’s the talk of the ESOP world: the $8.2 billion buyout of the Tribune Company (NYSE:TRB) by Chicago real estate magnate Sam Zell, the terms finalized at the first of this month—and the lion’s share leveraged through the company’s ESOP (Employee Stock Ownership Plan).  The two-stage transaction requires Zell to invest $315 million for a 40% stake in the company's common stock, while the ESOP borrows $7 billion to buy the remaining shares.

The financing and valuation issues related to the Tribune deal are staggering—but they also reflect the continued popularity of ESOPs as a leveraged buyout tool (because of their favorable tax treatment) and also as a means to boost company productivity and ease ownership transitions.  Current statistics say that 10% of America’s private sector employees now work in a company with an ESOP, with all the attendant rewards—and risks.

To help navigate the potential minefields of employee ownership, authors Robert Reilly and Robert Schweihs (Willamette Management Associates) will soon release The Guide to ESOP Valuation and Financial Advisory Services (2nd edition).  With over 600 pages of ESOP valuation narrative, checklists, and sample reports—most of which are new from the original release, this second edition updates current thinking on ESOP employer stock valuation, transaction structure, acquisition financing, independent financial adviser issues, and more.  To pre-order a copy, click here.

Answer on PE standard of value: It depends

In answer to last week’s query on the applicable standard of value to the buyout of an international PE fund (BVWire #55-2), Gil Matthews (Sutter Securities, San Francisco) writes: “The first question is whether the dissenter has a right to be bought out.  If so, this would appear to be the equivalent of a statutory appraisal, and I would expect the standard to be FAIR VALUE (a pro rata share of enterprise value with no premiums or discounts–generally net asset value for an investment company) rather than fair market value, where one could apply a discount for lack of marketability.”  If the shareholder does not have appraisal rights, but is being redeemed at the option of the company to avoid litigation, “then it would appear to be a question of arms-length bargaining, and fair market value would be a reasonable compromise.”

However, Matthews adds, “enterprise value could include a portfolio discount reflecting discounts applicable to securities owned by the investment company," and he suggests taking a look at the 1950 Delaware Supreme Court case Tri-Continental v. Battye.

Matthews' opinions are not legal advice, of course, but his reference to the long-standing Battye precedent is not hard to come by—at least not for subscribers of BVLaw™ at BVLibrary.com, who have access to over 1,600 federal and state valuation cases (updated monthly). We found the full-text opinion in a flash—and have made a copy available here.

More Meetings for a May morning

At last count, there were fewer than five places left for the annual one-day conference on "Current Topics in Business Valuation," sponsored by the ASA's Los Angeles Chapter on Wednesday, May 9, 2007.  Topics of interest to financial advisors and BV specialists include fair value developments—in particular the SEC perspective on fair value for financial reporting, deferred revenue issues, fairness opinions, M&A developments and more.  For more information, and to read about future events from the LA ASA, click here.

And on the opposite coast, the NY ASA chapter is holding its 15th Annual “Current Topics in BV,” on Friday May 4, 2007.  Speakers include Jim Hitchner, Brenda Woolbert (from the IRS), Stamos Nicholas leading a panel on current financial reporting issues, and an update on FASB projects by Michael Tully.  For more information, call Annie Bell at Empire Valuation Consultants, 212-714-0122, or check the Chapter’s website for updates.

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