Chapter 3 - THE FAMILY LIQUIDITY ELECTION
The company agreement had a clause called:
FAMILY LIQUIDITY ELECTION.
It existed for ordinary reasons.
Private-company shares were hard to sell.
Family members who:
divorced,
moved,
retired,
or needed liquidity
could voluntarily sell shares back to the company or family trust.
The price was based on a board-approved internal valuation.
Current internal price for Hannah’s 14%:
$4.18 million.
Independent appraisal commissioned by Hannah’s divorce counsel:
$10.64 million.
Huge difference.
Why?
The internal valuation used:
older earnings,
a 35% minority discount,
a 25% marketability discount,
and excluded a pending hospital-network contract.
The independent valuation used:
recent contracts,
normalized margins,
lower discounts,
and projected a new sterilization-services deal.
Could reasonable professionals disagree?
Yes.
Could the parents legally offer the lower valuation?
Possibly.
Could they force Hannah to accept it?
No.
The internal appraisal itself was not amateur work.
It came from Barlow & Finch Valuation Partners, a respected regional firm.
That fact strengthened the family’s defense.
Barlow used:
discounted cash flow,
market multiples,
and transaction comparables.
Its assumptions were conservative.
The controversial pieces were:
the 35% minority discount,
the 25% lack-of-marketability discount,
and the exclusion of Hartwell.
Priya explained:
“Private-company valuation is not an exact science.”
Hannah said:
“Then how can one side be four million and another ten?”
“Because small changes in assumptions compound.”
Priya showed her.
Start with enterprise value.
Subtract debt.
Allocate equity.
Then discount a minority interest.
Then discount illiquidity.
If Hartwell is excluded and discounts are high, Hannah’s stake falls sharply.
If Hartwell is probability-weighted and discounts are lower, it rises.
Richard later used that complexity aggressively.
“You see? There is no secret six million sitting in my pocket.”
Hannah replied:
“I never said there was.”
“Then stop saying we tried to steal six million.”
“I said you tried to make me sell before I saw the information.”
Richard went quiet.
Accuracy protected her again.
The election was voluntary.
Grace asked:
“Did anyone tell you it was mandatory because of divorce?”
Hannah looked at her.
May you like
“Mom did.”
That mattered.
