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Client Case Study
Shareholder Dispute
Client Profile:
Industry: Healthcare
Purpose of Valuation: Shareholder Dispute
Case Summary:
- Engaged to conduct an independent valuation of ordinary shares for a company facing a shareholders’ dispute.
- Encountered challenges of conflicting perspectives among shareholders, disputed financial information and uncertain cash flows and complex capital structure.
- The other shareholder demanded a specific valuation figure for their shares and was difficult to communicate with.
- The scope of work expanded halfway through the process, prolonging the duration to over three months.
- Our valuation helped our client settle for a significantly lower amount than the demanding shareholder’s claim.
- Despite the extended duration and increased workload, we did not request an additional fee.
1. Case Background:
Our client is one of two shareholders in a healthcare business in Singapore. Due to disagreements in operations of the business, they had decided to part ways with the unhappy shareholder opting to be bought out by the other shareholder (our client).
Our client engaged our services to perform an independent valuation of the company ordinary shares. The objective was to determine the equitable value of the shares in order to resolve the dispute between shareholders.
The case initially began as a short-term assignment. However, as the complexities of the shareholders’ dispute unfolded, the work extended over several months. We encountered various challenges, including conflicting perspectives, disputed financial information, uncertain cash flows, a complex capital structure, and the presence of a litigious shareholder.
2. Case Challenges:
- Conflicting Shareholder Perspectives:
- The shareholders involved in the dispute held divergent views on the company’s future prospects and valuation methods.
- Disputed Financial Information:
- Discrepancies or disagreements arose regarding the accuracy and reliability of the company’s financial information.
- Uncertain Future Cash Flows:
- The company’s future cash flows were uncertain due to factors such as industry volatility, economic conditions, and pending legal disputes.
- The shareholders had different view of the future of the business with the opposing shareholder adamant that the business would not survive the next 3 years.
- Complex Capital Structure:
- The business had a complex capital structure, including different classes of shares and outstanding debt.
- Litigious Shareholder:
- The presence of a litigious shareholder necessitated caution in our communication to ensure accurate and well-supported statements while remaining firm and direct.
- Balancing the need for precision in our wording with addressing the shareholder’s concerns and potential legal implications added an extra layer of complexity.
3. Overcoming the Challenges:
- Mediation and Facilitation:
- We engaged in mediated discussions to foster open communication, facilitate understanding, and find common ground among the conflicting shareholders.
- Independent Financial Analysis:
- We conducted thorough research and independent verification to establish the accuracy and reliability of the financial data.
- We successfully addressed the disputes and provided clarity on the financial information.
- Uncertain Future Cash Flows and Sensitivity Testing:
- The uncertainty surrounding future cash flows presented a challenge in the valuation process. To address this, we performed in-depth scenario analysis and sensitivity testing.
- We provided a comprehensive assessment of the range of possibilities.
- Complex Capital Structure:
- We conducted a thorough analysis of the capital structure, considering different classes of shares and outstanding debt. By applying appropriate methodologies and accounting for the specific implications of the capital structure, we ensured that we covered all bases adequately.
- Litigious Shareholder:
- We were extra careful with our choice of words in our reports as well as communication with the opposing shareholder. Also we had to triple-check that our opinions were accurate, well-supported, and aligned with industry standards.
- While addressing the concerns of the litigious shareholder directly, we remained mindful of potential legal implications.
4. Case Outcome:
Through mediation, independent verification, scenario analysis, expert consultation, and precise communication, we successfully resolved the challenges faced in this shareholders’ dispute.
Knowing that the opposing shareholder was a ‘black and white’ type of person, we also provided extra detailed explanations to address the concerns raised and maintained transparency throughout the process.
In the end, there was a proper resolution of the shareholders’ dispute, with a favourable and cost-effective solution while minimizing financial implications. Our client was able to secure a significantly reduced amount compared to the initial demands made by the opposing shareholder.
And despite the extended duration and increased workload, we remained committed without requesting an increase in our fee.
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