Deloitte defends discounting value of minority shares

By Duncan Bridgeman

Friday 4th October 2002

Deloitte Touche Tohmatsu chairman John Hagen has defended claims his valuation of shares owned by former Amalgamated Dairies shareholders should not have been discounted.

Amalgamated Dairies is being sued in the High Court by the Kelso Trust, led by former employee John Glaister, which says it was ripped off over the shares.

Central to the case is Deloitte's valuation of shares formally owned by Mr Glaister's father, Grahame, who worked at Amalgamated Dairies from 1934 until his death in 2000.

The shares became part of the Kelso Trust and, following Grahame Glaister's death, they were bought back by Amalgamated Dairies in line with a 1976 deed of transfer.

In 2000 Deloitte initially valued the trust's 3.5% shareholding at $12.6 million.

But it then discounted the holding by 20% to $10.1 million, claiming this represented "fair value" a move disputed by the Kelso trustees.

Mr Hagen told the High Court Deloitte's assessment of value was consistent with pre-vious valuations and the application of a minority discount was necessary to determine fair value.

He said the requirement to determine fair value was the overriding requirement of the valuation.

The fact that Kelso Trust only held 3.5% of the shares in Amalgamated Dairies meant it had no control or authority in the direction of the company, he said.

"A very small minority shareholding in a closely held company, as is involved in this instance, suffers from the dual disadvantage of having little or no power and very low liquidity," Mr Hagen said.

"Where one party holds a 96.5% share and the other a 3.5% share, then to assess the various individual shares as having equal value would be patently unfair.

"In completing our four
valuations in 1987, 1993, 1999 and 2000 we have consistently applied a minority discount from the pro rata value."

He said the shares were properly valued in line with conventional valuation theory, properly considered in terms of the constitution and the minority discount was correctly applied.

Amalgamated Dairies, founded by the late dairy entrepreneur Sir William Goodfellow in 1927, was valued at $359 million in 2000.

It paid a dividend of $70 million the previous year and earned a net profit of more than $61 million in 2000.

Although the company was no longer involved in the dairy industry it had substantial interests in the fishing industry, with a 45% stake in listed fishing company Sanford and a 50% stake with joint-venture partner Talley's Fisheries, in Amaltal Corporation.

Amalgamated Dairies is countersuing, claiming goodwill and intangible assets should be excluded from the value of the trust's shares.

The plaintiffs also seek lost interest on the shares between August 22, 2000 (the date Mr Glaister snr died) and payment for the shares nearly a year later.

Amalgamated Dairies' lawyer John Land argued that his client was not responsible for the delays between December 5, 2000, and payment in July 2001, and therefore interest should not be awarded.

Justice Paul Heath reserved his decision until October 30 after a five-day trial at the High Court in Auckland last week.

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