Virtually every ESOP appraisal that has been written in the past 10 years has concluded that, both in the case of purchases of company stock by an ESOP from direct shareholders and in the case of subsequent distributions and repurchases of company stock to and from plan participants, the discount for lack of marketability is greatly diminished by virtue of the ESOP “put option.” This article reviews the origin and development of the put option argument in the appraisal literature and concludes that (1) the put option argument is fallacious with respect to purchases of company stock from direct shareholders and (2) nevertheless, there should be no marketability discount with respect to purchases of company stock from direct shareholders. The issue of marketability discounts in ESOP transactions is an issue that has been crying out for clarification ever since the Eyler case was decided by the Tax Court in 1995 ... Read More..
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