Editorial Type:
Article Category: Research Article
 | 
Online Publication Date: 01 Nov 2017

Avoiding Value Double-Count in Companies With Cross-Holdings

Page Range: 106 – 111
DOI: 10.5791/BVR-D-17-0002.1
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Have you unwittingly double-counted value in circumstances where there are cross-holdings? When undertaking a valuation, we sometimes come across companies within an organization structure that have cross-holdings in each other. In this article, we explore the valuation of such companies (the “cross-holdings companies”), including the valuation of the pro-rata common equity ownership interests held by individuals or entities above the cross-holdings companies.

After arriving at the en bloc value of the common equity of the cross-holdings companies within the organization structure, we then examine what these calculated values truly represent and the anomalous value “double-count” indicated at first blush.

Copyright: © 2017, American Society of Appraisers
<bold>Figure 1</bold>
Figure 1

Organization Structure Adopted for this Analysis

<bold>Figure 2</bold>
Figure 2

Adopted Organization Structure Revised to Reflect True Underlying Value in the Cross-holdings Companies Combined

<bold>Figure 3</bold>
Figure 3

Adopted Organization Structure Updated to Reflect the Calculated Ownership Interest of Each Shareholder

<bold>Figure 4</bold>
Figure 4

Value of OpCo Y + OpCo Z as a Function of (Equal) Cross-holding Ownership Percentages

<bold>Figure 5</bold>
Figure 5

Adopted Organization Structure Updated to Reflect a More Extreme Example in Which the Cross-holdings Are 90%

Contributor Notes

Sid Jaishankar, CPA, CFA, CBV, joined Duff & Phelps in 2010. He is a director in the Toronto office and part of the Canadian Dispute and Valuation practice. Sid has over twelve years of experience in business and securities valuation, damages quantification, and expert testimony. Sid specializes in the areas of business and securities valuation and damages quantification. He has prepared and critiqued numerous expert reports that have been accepted by various Canadian courts in respect of business valuation and damages quantification pursuant to a variety of dispute matters including, but not limited to, commercial, intellectual property, tax, and securities litigation. Sid has been qualified as an expert witness and given evidence on damages quantification in the Ontario Superior Court of Justice.

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