Best Practices For Valuing Preferred Stock

Law360, New York (November 21, 2013, 8:18 PM EST) -- In a July 2012 decision (In re: Appraisal of the Orchard Enterprises Inc.), the Delaware Chancery Court found that the value of preferred stock should be limited to its "as-converted" value. In that case, the plaintiff argued for an "as-converted basis" while the defendants argued for liquidation preference. The basis for the court's decision rests in the subjectivity of a subsequent transaction that the court found would be necessary in order to trigger the liquidation preference. In this article, we review preferred stock securities, an analysis of how they are used by investors, and alternate methodologies for valuing complex preferred stock securities....

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