Impairment test of goodwill and military secrecy
August 11, 2018
Salvidio & Partners publishes 2018 III Q Industry Betas Report
October 3, 2018

Golden powers – if no DLOM, then when ?

We were istructed to release an opinion about the fairness of the price offered to buy a controlling interest into an Italian company that operates in the defense and security sector. The company whose shares were under offer manages military facilities and provides systems to protect both military TLCs as well non military sensitive soft and hard strategic assets. In valuing the company’s shares we had to consider that Italian law – notwithstanding EU and other international regulations concerning free circulation of capital and investments – entitles government to resort to s.c. “golden powers” to stop any transaction with any potential buyer that may represent, directly or indirectly, a possible threath to national security. Golden powers also give the government the possibility to make requirements in terms of the target company’s internal organisation and governance, to impose certain investment and expeditures and to limit technology transfers. In our view, golden powers constitute a severe restriction to the marketability of a company that falls within their application scope. They de facto limit the number of potential buyers to a handful of entities that may reasonably expect their acquisition not being disapproved by the government. We therefore applied a discount for lack of marketability to the value of the companie’s shares. We know DLOM is a controversial aspect in valuations, but we think that if this was not the case to apply it, then when should it be applicable ?