The Company Is Worth How Much?


An investor put $28,000 into an oil and gas company owned by a friend of his from their teenage years. Ten years later, the company offered to buy out the investor’s roughly 6% stake in the company for $6.5 million. The investor accepted the offer, figuring he had made a killing on the investment, as indeed he had. But all things are relative. Two years after the buyout, the investor’s friend sold the company for $2.6 billion. Needless to say, the investor’s suspicions were raised, and he eventually sued his friend for having committed fraud when the buyout offer was extended and accepted.

A jury ruled in the investor’s favor, and the resulting judgment for the investor was $196 million. The jury was persuaded by evidence that the defendant owner and company had painted an erroneously gloomy picture of the company’s prospects as it planned to explore for natural gas. The defendants did not share with the investor that the company had an enormous upside potential about which the defendants were enthusiastic and even excited. That upside became a reality, but only after the investor had sold his interest in the company.

The company and its owner tried to place the responsibility for the buyout on the investor, not only because of his sophistication but also because of a release he had signed at the time of the buyout. The court ruled that the release was no impediment to the lawsuit. With the benefit of hindsight, perhaps the investor could have shown more diligence in looking behind the contents of the letter that offered the buyout. But the jury was not inclined to make him responsible for, at worst, having his guard down when dealing with an old friend.