Appraisal Economics has valued a portfolio of patents and patent applications used to manufacture photovoltaic cells in the solar power industry. The portfolio was transferred as part of a legal settlement between two U.S.-based chemical companies that operate in China. One of the companies had developed a patented process for printing hot melt ink onto the substrate of a silicon wafer to manufacture solar cells. The other company developed similar procedures for manufacturing solar cells. Upon being made aware of the existence of the patented procedure, the second party filed a motion with the Chinese Patent Re-examination Board (CPRB) to invalidate the pre-existing patent. The CPRB rejected the request, upon which an agreement was reached to compensate the first party for patent infringement. The settlement called for valuing the patent portfolio, which was performed by Appraisal Economics.
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Appraisal Economics has performed a transfer pricing analysis related to the transfer of intellectual property (IP) assets to an offshore holding company set up by a U.S.-based global media company. The transfer was part of a restructuring transaction designed to broaden the company’s product offerings of print and digital media and expand licensing opportunities for the company’s trademarks and logo. Section 482 of the Internal Revenue Code requires that royalty payments between related parties in different countries be set at arm’s length terms. This is intended to prevent opportunistically recognizing revenue, expenses, and profits in a way that results in taxable income being improperly shifted to lower-tax jurisdictions and evading U.S. taxes. The transaction was also required to comply with Section 367(d) of the Internal Revenue Code, which governs certain terms of cross-border reorganizations. Appraisal Economics performed a detailed analysis to determine the arm’s length royalties between the entities and determined the business enterprise value of each entity to support company management’s efforts to demonstrate compliance with the provisions of the relevant regulations.
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MERGER ARBITRAGE DISCOUNT
Appraisal Economics has valued a business in the process of being sold. We performed an analysis of the appropriate discount from a proposed transaction price to account for the time and uncertainty associated with the transaction being consummated as proposed, often referred to as “merger arbitrage.” A potential acquirer submitted a letter of intent to purchase a privately held company; however, there was substantial uncertainty whether the transaction would actually occur and, if so, what the ultimate price and terms would be after due diligence and final negotiations. Another consideration is how long shareholders of the target company would have to wait to realize the proceeds from a sale. To determine the fair market value of the company being sold shortly after the target company received a letter of intent, we performed research and analysis to determine the appropriate discount from the proposed transaction price. Appraisal Economics valued the subject interest for gift and estate tax planning purposes.
NON-COMPETE AGREEMENT (NCA) VALUATION
Appraisal Economics has valued non-compete agreements (NCAs or covenants not to compete) of senior executives of a publicly traded real estate investment trust (REIT) that merged with another public REIT. As part of the merger, certain executive officers entered into covenants not to compete with the merged entity during, and for a period of time after, their employment. Section 280G and Section 4999 of the Internal Revenue Code relate to excess parachute payments upon certain corporate events, such as a change in control. Amounts that executives receive in exchange for committing to perform and abstain from certain activities specified in the NCAs are generally taxed at lower rates than amounts considered to be “golden parachutes”; however, only amounts that are “reasonable compensation” qualify for this favorable treatment. Appraisal Economics valued each NCA as part of our Section 280G analysis to determine the reasonable compensation of each executive.