Written by Chris Walton, JDThree brothers owned two Minnesota businesses: a trucking company (Stan Koch & Sons Trucking, or SKT) and an industrial distribution company (Koch Industries, or KI). The plaintiff’s expert valued Jim Koch’s combined interests at approximately $58 million. The defendants’ expert came in at roughly $40 million. The spread — $18 million on the same two companies as of the same date — was driven almost entirely by one question: should an asset-intensive trucking company be valued primarily on its earnings or primarily on its assets?
The Minnesota District Court answered in Koch v. Koch (No. 27-CV-18-20579, Minn. Dist. Ct. May 6, 2022): earnings. The court found the plaintiff’s expert more credible on almost every contested point — income approach over asset approach, DCF over capitalization of earnings, private-company transactions over public comparables, and no minority or marketability discounts in a fair value buyout. The resulting buyout values: $160 million for SKT and $30 million for KI. For shareholder dispute counsel, the case is a practitioner’s guide to what wins and what loses when competing experts present fundamentally different philosophies of value for the same business.
Jim, Randy, and Dave Koch were the sole shareholders of both companies. Jim held one-third of KI and approximately 30% of SKT. SKT was a substantial trucking and transportation operation. KI was a distributor of chain, cable, rope, and related industrial products. The brothers operated under a 2006 settlement agreement that governed bonus distributions, profit-sharing, and sale restrictions.
The relationship deteriorated. An IRS audit triggered disputes over whether bonus payments under the agreement were tax-deductible. The defendants suspended bonus payments. Jim sued for breach. After a jury trial, the jury found the defendants breached the 2006 agreement and awarded Jim $12 million in damages. The parties then agreed to a buyout of Jim’s interests in both companies, with the buyout value to be determined in a bench trial.
Both sides retained experienced valuation experts. Jim’s expert, Robert Strachota, valued the combined interests at approximately $58 million (as of May 31, 2017). The defendants’ expert, Ginger Knutsen, valued them at approximately $40 million. The court ultimately adopted values close to Strachota’s: $160 million for SKT and $30 million for KI on an enterprise basis, yielding a buyout of Jim’s proportional interests at approximately $58 million. The $62 million gap between the experts’ enterprise-level conclusions on SKT alone was driven by four specific disagreements the court resolved one by one.
This was the threshold dispute. SKT was a trucking company with over $130 million in tangible assets — trucks, trailers, terminals, equipment. Knutsen argued that the asset approach should carry the most weight because the business was asset-intensive. Her reconciliation for SKT placed primary emphasis on asset value and assigned zero goodwill, reasoning that earnings didn’t justify it.
Strachota argued the opposite: SKT was a going concern generating substantial cash flows, and its value was driven by what those cash flows were worth to an investor, not by the liquidation or replacement cost of its trucks. He weighted the income approach at 50%, the market approach at 35%, and the asset approach at only 15%.
The court sided with Strachota. The reasoning matters for practitioners: just because a business is asset-intensive doesn’t mean the asset approach should dominate. A trucking company’s assets are depreciating equipment that must be continually replaced. The value of the business lies in its ability to generate recurring revenue and profit from deploying those assets, not in the assets themselves. If you liquidated SKT’s fleet tomorrow, you’d recover a fraction of the enterprise value the income approach captures. The court found Strachota’s 50/35/15 weighting more credible because it reflected what a buyer would actually pay for the ongoing business, not for a fleet of used trucks.
The parallel to Estate of Cecil (where the Tax Court gave zero weight to an asset-based approach for an operating company) and Estate of Jones (where the Tax Court favored the income approach for a timber company with $424 million in timberland) is direct: when the entity is a going concern with no liquidation intent, the income approach should carry the primary weight, regardless of the asset base.
Within the income approach, the experts diverged on methodology. Strachota used a discounted cash flow analysis, projecting five years of future cash flows and discounting them to present value at an 11.7% discount rate for SKT and 19.3% for KI. Knutsen used a capitalization of earnings method, applying a single capitalization rate to a weighted average of historical earnings.
The court preferred the DCF. The reasoning is consistent with Delaware Chancery precedent (DFC Global, Norcraft, Ramcell): a DCF captures growth, changing margins, capital expenditure cycles, and company-specific dynamics that a single-period capitalization rate cannot. SKT’s revenue and profitability had been increasing over the valuation period, driven by improved performance, increased equipment investment, and the 2017 corporate tax rate reduction. A capitalization of historical earnings, by definition, looks backward and doesn’t capture that trajectory.
The court also found Strachota’s discount rate more defensible. He built risk premiums based on customer concentration, market factors, and company-specific characteristics. Knutsen’s WACC-derived rates (8.76% for SKT in 2017) were lower — but the court found her capitalization approach less reliable than Strachota’s DCF regardless of the rate. When the methodology is wrong, the discount rate within it doesn’t save the conclusion.
In the market approach, the experts made different choices about comparables. Strachota identified 10 private-company transactions from DealStats involving trucking companies between 2004 and 2019. He used market value of invested capital to revenue and EBITDA multiples. Knutsen relied on six publicly traded companies, analyzing their 10-Ks and 10-Qs to derive multiples.
The court preferred Strachota’s private-company comparables for a straightforward reason: SKT was a private company. Public company multiples reflect a control premium that’s already priced in (for acquisitions) or a minority price that needs to be adjusted upward (for trading comparables). Knutsen used public company trading multiples without adjusting for the minority-to-control premium — meaning her market approach valued SKT as if a buyer were purchasing a minority stake in a public company, not acquiring 100% of a private one.
For practitioners, this is a recurring error in market approach work: using public company multiples for a private company without making the minority-to-control adjustment. In a buyout context where the standard of value is fair value on a controlling basis, the failure to adjust produces a value that’s systematically too low. The court noticed.
Knutsen reduced SKT’s asset value by approximately $28 million for deferred income tax liabilities. Her reasoning: the deferred taxes represent a real obligation that will eventually come due, and any buyer would factor them into the purchase price.
Strachota excluded them. The court agreed with Strachota, noting that most appraisers do not deduct deferred tax liabilities unless there is specific evidence that a buyer would assume the liability. In a going-concern valuation, deferred taxes are a timing difference — the taxes will be paid over time as the accelerated depreciation reverses, but the cash flows in the DCF already account for the tax payments as they occur. Deducting the full present value of the deferred tax liability as a lump sum double-counts the tax burden.
This is the same issue that appeared in Ramcell (where the respondent’s expert’s terminal value implied an implausible return on capital) and in In Re Cellular (where the tax treatment of the numerator and denominator had to be consistent). The principle is the same across all of them: if you account for a tax obligation in one part of the model, don’t account for it again in another part. The court will find the inconsistency.
Strachota applied no discount for lack of marketability and no discount for lack of control to Jim’s interests. Knutsen didn’t apply discounts either (her lower values came from the asset approach and methodology differences, not from discounting). The court accepted the no-discount approach without discussion.
Under Minnesota’s fair value standard for shareholder buyouts, minority and marketability discounts are generally not applied. The buyout is designed to give the departing shareholder the fair value of their proportional interest in the enterprise as a going concern — not the discounted value they’d receive if forced to sell a minority stake on the open market. This is the same principle that governs Delaware statutory appraisals (where fair value excludes minority and marketability discounts) and is the opposite of the fair market value standard used in gift tax cases (where DLOM and DLOC are routinely applied, as in Kress and Cecil).
For practitioners handling shareholder buyouts: know whether your jurisdiction uses fair value or fair market value as the buyout standard. The standard determines whether discounts apply. In a fair value jurisdiction, arguing for DLOM or DLOC is not just unlikely to succeed — it signals to the court that the expert doesn’t understand the legal framework.
Koch doesn’t hold that the asset approach is always wrong. It holds that the asset approach shouldn’t dominate the valuation of a profitable going concern, even when the business is asset-intensive. The asset approach is most appropriate for holding companies, investment companies, natural resource companies where liquidation is a realistic scenario, and businesses where the tangible assets have independent market value that exceeds the present value of the cash flows they generate.
For an operating company with recurring revenue, growth trajectory, and no liquidation intent, the income approach — preferably a DCF rather than a capitalization of earnings, when the company’s performance is changing over time — is the primary tool. The market approach provides a check. The asset approach provides a floor. The weighting should reflect the relative reliability of each, given the specific facts. Strachota’s 50/35/15 allocation survived scrutiny because it matched the economic reality of a profitable, growing trucking business. Knutsen’s asset-heavy weighting didn’t.
If you’re evaluating a buyout offer or preparing to litigate a shareholder dispute involving an asset-intensive operating company, ask the threshold question first: is the value in the assets or in what the assets produce? If the answer is the latter, the income approach should lead. Koch is the case to cite.
The court found Strachota’s valuations “somewhat generous” and still adopted them over Knutsen’s in almost every respect. The $62 million enterprise-level spread on SKT was driven by four specific methodological choices: income over assets, DCF over capitalization, private transactions over public comparables, and exclusion of deferred tax liabilities. Each choice is individually defensible and well-supported by valuation literature. Together, they reflect a consistent philosophy: value the business as a going concern based on what it earns, not what its assets cost. For shareholder dispute counsel, Koch is a roadmap for which expert approaches win and which lose when the fundamental question is whether an operating company’s value lives in its balance sheet or its income statement.
If you’re evaluating competing expert valuations in a shareholder buyout and need to determine which methodological choices are defensible for your specific facts, happy to talk through the analysis. The approach-weighting question often drives the outcome more than any single input.
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