                  T.C. Memo. 1996-506



                UNITED STATES TAX COURT



         PABST BREWING COMPANY, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 18466-92.               Filed November 12, 1996.



     P brews and sells beer. During the relevant
years, many individuals and companies sought control
over P through means which included hostile takeovers,
tender offers, and proxy contests. Pursuant to an
agreement between P and H, H bought a majority of P's
shares in a public tender offer, and P distributed
certain assets to H in exchange for all of P's shares
held by H and the assumption by H of a certain
liability. In connection therewith, P and H entered
into an allocation agreement that set forth a dollar
amount for each transferred asset. P and R dispute
that the amount assigned to each asset is that asset's
fair market value. P claims that the fair market value
is significantly lower than the assigned amount. R
claims that the fair market value is significantly
higher than the assigned amount. Held: The aggregate
fair market value of the transferred assets equals the
amount set forth in the allocation agreement for all of
the assets. Held, further: The fair market value of
                                 - 2 -

     each asset is the corresponding amount set forth in the
     allocation agreement.


     William M. Bitting, William A. White, and Dean E. Dennis,

for petitioner.

     Alan M. Jacobson and Steve R. Guest, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:     Pabst Brewing Co. petitioned the Court to

redetermine respondent's determination of the following

deficiencies in its Federal income taxes and additions thereto

under section 6661:

                                                   Additions to Tax
     Year or period ended        Deficiency           Sec. 6661

          12/31/81                  $58,241                ---
           3/18/83               28,188,661           $4,167,682
           3/19/831              28,188,661            4,167,682
          12/31/83                2,483,904              620,976
          12/31/84                2,953,841                ---
           2/28/85                  234,115               58,529
     1
      Petitioner had two taxable periods during the 1983 calendar
year, the first period ended in mid-March and the second period
ended Dec. 31. Petitioner filed its return using Mar. 18, 1983,
as the ending date of the mid-March period. Respondent
determined that the proper ending date was Mar. 19, 1983, but
alternatively determined that the taxable period ended Mar. 18,
1983. The parties agree that the mid-March period ended
Mar. 19, 1983.

Following the resolution of all other issues in this case, we

must decide the fair market value of certain assets (Transferred

Assets) that petitioner transferred to G. Heileman Brewing Co.

(Heileman) during the taxable period ended March 19, 1983.
                                - 3 -

Generally, petitioner transferred these assets to Heileman

through the following two steps:   (1) Heileman acquired a

controlling block of petitioner's stock through a public tender

offer and (2) petitioner distributed the Transferred Assets to

Heileman in exchange for its surrender of that stock, as well as

other consideration.    In Pabst Brewing Co. v. Commissioner, T.C.

Memo. 1995-239, we held that petitioner's transfer of the assets

was in redemption of its stock.    Thus, we held, the transfer was

subject to section 311(d)(1), and petitioner had to recognize

gain on the transfer based on the fair market value of each

Transferred Asset.   We hold herein that the aggregate fair market

value of the Transferred Assets equals the total amount set forth

in a written allocation agreement (Allocation Agreement) that

petitioner and Heileman entered into with respect to the

exchange.   We also hold that the fair market value of each

Transferred Asset is the corresponding amount set forth in the

Allocation Agreement.   Unless otherwise indicated, section

references are to the Internal Revenue Code in effect for the

subject years.   Rule references are to the Tax Court Rules of

Practice and Procedure.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulated facts and exhibits submitted therewith are

incorporated herein by this reference.   Petitioner's principal

place of business was in Mill Valley, California, when it
                               - 4 -

petitioned the Court.   At all relevant times, petitioner was

principally engaged in the brewing and sale of malt beverages

(beer).   Its brands of beer were:   (1) Pabst Blue Ribbon,

(2) Andeker, Pabst Extra Light, (3) Red, White & Blue,

(4) Burgermeister, (5) Blitz-Weinhard, (6) Henry Weinhard Private

Reserve and Bohemian beers, and (7) Olde English 800 Malt Liquor.

Its brewing facilities (with annual capacity) were situated in:

(1) Milwaukee, Wisconsin (5.5 million barrels), (2) Newark, New

Jersey (2.5 million barrels), (3) Perry, Georgia (5.0 million

barrels), and (4) Portland, Oregon (2.0 million barrels).1

     During the 1970's and 1980's, the brewing industry was

dominated by Miller Brewing Co. (Miller) and Anheuser Busch, Inc.

(Anheuser Busch), two large brewers that continued to expand

their operations and grow rapidly during these years.    Smaller

breweries generally became obsolete because they were unable to

compete with Anheuser Busch, Miller, and other large brewers from

a cost-effective or profitability point of view.   Many of the

smaller breweries were forced to liquidate, selling their

brewing-related assets to other breweries at fire-sale prices, or




     1
       The parties in their stipulation of facts sometimes refer
to the brewery in Georgia as situated in the City of Pabst. We
have looked at a map of Georgia, and we are unable to find any
city in Georgia named Pabst. We believe that the parties have
mistakenly referred to the City of Perry as "Pabst", and we
proceed on that belief. We note, however, that our belief has no
bearing on our holdings herein.
                                - 5 -

they were forced to attempt to grow by merging with one or more

competitors.

     In late 1981, petitioner's management began exploring

several alternatives to allow petitioner's shareholders to

realize the underlying asset value of their investment in

petitioner.    During the last quarter of 1981, the market price of

petitioner's stock fluctuated between $11.75 and $15.75 per

share.   Many individuals and companies had sought (and were

seeking) control over petitioner through means that included

hostile takeovers, tender offers, and proxy contests.     These

individuals and companies included Heileman, C. Schmidt & Sons,

Inc. (Schmidt), Irwin L. Jacobs (Jacobs), Paul Kalmanovitz

(Kalmanovitz), and JMSL Acquiring Corp. (JMSL), a Delaware

corporation formed by Jacobs, Dennis M. Mathisen (Mathisen), and

two other individuals (collectively the Jacobs Group).2    The

Jacobs Group had begun making substantial purchases of

petitioner's stock in November 1980, purchasing in that month

almost 10 percent of its outstanding stock, and the Jacobs Group

had acquired nearly 14 percent of petitioner's outstanding stock

by October 1982.   In an attempt to obtain total control over

petitioner, the Jacobs Group and its designees (collectively, the


     2
       Heileman was a Wisconsin corporation engaged in the
brewing and sale of beer. Schmidt was a brewery about one-fourth
the size of petitioner. Jacobs was an investor who had
previously acquired and sold another brewer. Kalmanovitz was the
owner of numerous other brewers.
                               - 6 -

Dissident Group) announced an intent to start a proxy fight at

petitioner's annual meeting of shareholders, scheduled for

April 13, 1982.   In anticipation of that meeting, petitioner's

incumbent management and JMSL (through a group called the

Shareholders' Committee to Revitalize Pabst) proposed competing

slates of nominees for election to petitioner's board of

directors (the Board) and solicited proxies from petitioner's

shareholders in order to elect the desired directors.   The Jacobs

Group was unsuccessful in its attempt to acquire control over

petitioner at the 1982 annual meeting.   The incumbent directors

received approximately 54 percent of the votes cast at the

meeting, and the Dissident Group received the rest.

     In May 1982, Heileman began exploring the possibility of a

business combination with petitioner.3   Heileman's management

believed that Heileman had to acquire the Transferred Assets to

start a brewing operation in the southeastern United States in

order to be competitive in the beer industry.   Meetings were held

with representatives of the U.S. Department of Justice (Justice

Department) concerning the antitrust aspects of a combination

between petitioner and Heileman.   At the time, Heileman was

subject to a 1973 consent decree with the Justice Department that


     3
       Contemporaneously therewith, Schmidt had offered to buy
shares of petitioner's stock at $20.50 in cash plus a $5 note,
but the Board rejected this offer. The Board had also rejected
an earlier offer of Schmidt to buy petitioner's stock at $16 per
share.
                               - 7 -

prevented Heileman from acquiring any brewing concern in an

eight-State area of the Midwestern United States.   Shortly after

Heileman announced on May 28, 1982, that it intended to acquire

all of petitioner's shares in a merger transaction by paying cash

of $24 per share, the Justice Department announced that it would

oppose the proposed acquisition due to the 1973 consent decree.

     When Heileman and petitioner were discussing their possible

affiliation, representatives of petitioner and Olympia Brewing

Co. (Olympia) were discussing a business combination of their two

companies.   Olympia was a competitor of petitioner, with brewing

facilities in:   (1) Tumwater, Washington, (2) St. Paul,

Minnesota, and (3) San Antonio, Texas.   Olympia's brands of beer

were:   (1) Olympia, (2) Olympia Gold (light beer), (3) Hamm's,

(4) Hamm's Special Light, (5) Lone Star, (6) Lone Star Light,

(7) Buckhorn, and (8) Grenzquell.   Petitioner's management

believed that a combination of petitioner and Olympia would be

good from a business point of view, and that it would allow

petitioner's shareholders to realize cash or cash equivalents for

their shares through a recapitalization.   On June 2, 1982,

petitioner's wholly owned subsidiary, PBC Corp. (PBC), commenced

a cash tender offer for 1.27 million shares of Olympia at

$26 per share (PBC Offer).   Eight days later, petitioner and PBC

entered into a definite agreement with Olympia providing for a

business combination between petitioner and Olympia (June 10,

1982, Agreement).   Under the June 10, 1982, Agreement, the PBC
                               - 8 -

offer was raised to $28 per share in cash.   The second step of

the proposed combination, if approved by Olympia's shareholders,

was to undertake expeditiously a transaction in which the Olympia

shares still outstanding (i.e., shares not purchased under the

PBC Offer) would be exchanged for securities and/or cash having a

fair market value of not less than $26 per Olympia share.

     On June 23, 1982, the Jacobs Group, through JMSL, offered to

buy all of petitioner's outstanding shares (First JMSL Offer) at

$24 per share if petitioner and PBC terminated PBC's offer for

Olympia shares, and $22 per share if the PBC offer was not

terminated.   Prior to making the First JMSL Offer, JMSL entered

into a "put" agreement (Put Agreement) with Heileman under which

JMSL could compel Heileman to purchase petitioner's breweries in

Newark, New Jersey, and Perry, Georgia, together with an

exclusive license to produce and market all of petitioner's

brands in a 27-State area, if JMSL elected a majority of the

directors on the Board.   In response to the First JMSL Offer,

Olympia, through its wholly owned subsidiary OBC Acquisition,

Inc. (OBC), made a competing offer on July 6, 1982, to purchase

4 million of petitioner's shares (approximately 49 percent of its

outstanding stock) at $25 per share in cash (OBC Offer).    The OBC

Offer stated that, if it were successful, each of petitioner's

shares that OBC did not purchase for cash would be exchanged

pursuant to a merger for 1 share of a new class of convertible

preferred stock of a combined petitioner/Olympia entity.
                               - 9 -

     On July 14, 1982, pursuant to the June 10, 1982, Agreement,

PBC purchased 1.27 million shares of Olympia (49 percent of its

outstanding shares) for $28 per share.

     On July 22, 1982, the Justice Department announced in a

press release that it would oppose the First JMSL Offer because

the proposed sale of the assets to Heileman pursuant to the Put

Agreement raised serious antitrust concerns and made it unlikely

that the surviving entity would survive in the long term.   On the

same date, the U.S. District Court for the District of Delaware

(District Court) issued preliminary injunctions enjoining both

the First JMSL Offer and the OBC Offer.   On July 23, 1982, JMSL

terminated the First JMSL Offer.   OBC terminated the OBC Offer

3 days later.

     After the termination of these offers, Jacobs and Mathisen

met with William F. Smith, Jr. (Smith), petitioner's president

and chief executive officer, and one of petitioner's distributors

to discuss the demands of the Jacobs Group, including a possible

restructuring of the Board.   These negotiations were unsuccessful

and, on August 31, 1982, members of the Dissident Group announced

that they would seek removal of the incumbent directors of the

Board and attempt to replace them with the Dissident Group's

nominees by soliciting the consent of the owners of a majority of

petitioner's outstanding shares.   The Dissident Group's consent

materials stated that, if the Dissident Group's nominees were

elected as directors, they would use every effort to implement
                              - 10 -

expeditiously a cash tender offer by petitioner to redeem its

shares at $23 per share.   The Dissident Group subsequently

delivered written consents to petitioner's management,

purportedly representing the consents of shareholders holding a

majority of petitioner's shares, authorizing the removal of the

incumbent directors and election of the Dissident Group nominees

in their place.

     On September 15, 1982, petitioner and Smith commenced an

action against the members of the Jacobs Group in the District

Court challenging the legality of the solicitation of consents

and seeking to prevent the redemption process.   On October 13,

1982, the District Court held that the Dissident Group's

solicitation materials violated certain provisions of the Federal

securities laws, that the written consents obtained by the

Dissident Group and delivered to petitioner's management were of

no legal effect, and that the incumbent directors on the Board

remained petitioner's duly constituted directors.   See

Pabst Brewing Co. v. Jacobs, 549 F. Supp. 1068 (D. Del. 1982),

affd. without published opinion 707 F.2d 1392, 1394 (3d Cir.

1982).

     On October 27, 1982, JMSL commenced a second tender offer

(Second JMSL Offer) pursuant to which JMSL sought to purchase up

to 3 million shares of petitioner's stock for $24 per share in
                              - 11 -

cash.4   At that time, JMSL was owned through a Delaware holding

company, PST Acquiring Corp. (PST), which was owned 50 percent by

the members of the Jacobs Group and 50 percent by Kalmanovitz.

Petitioner's shares were trading on the New York stock exchange

at approximately $20 per share.

     In response to the Second JMSL Offer, petitioner and

Heileman entered into an agreement in principle on November 5,

1982, as later amended on November 9 and 26, 1982 (Agreement in

Principle).   The Agreement in Principle was the product of

arm's-length negotiations between petitioner and Heileman.    As

originally drafted, the Agreement in Principle contemplated the

following transaction:   (1) Heileman's acquisition of petitioner

and Olympia by way of a merger, (2) Heileman's retention of

certain assets of petitioner and Olympia, and (3) a spinoff of

the remaining assets to a new entity of which Heileman would not

be a shareholder.   To effectuate the merger, the Agreement in

Principle provided that Heileman, through a wholly owned

subsidiary, would make a cash tender offer to acquire

petitioner's stock.

     On November 10, 1982, pursuant to the Agreement in

Principle, Heileman commenced a tender offer (First HBC Offer)

through its wholly owned subsidiary, HBC Acquisition, Inc. (HBC),


     4
       The 3 million shares, when combined with the shares the
Jacobs Group already owned, constituted a controlling interest in
petitioner.
                               - 12 -

to purchase up to 5.5 million shares of petitioner at $27.50 per

share in cash.    The First HBC Offer was the first step in

implementing the Agreement in Principle.    At or about the same

time, the Board concluded that the $24 per share offered by JMSL

was inadequate and not in the best interests of petitioner or its

stockholders.    The Board's decision was partially based on a

written opinion (fairness opinion) that the Board received from

petitioner's investment banker, Lehman Brothers Kuhn Loeb, Inc.

The fairness opinion stated that:    (1) The $24 price offered in

the Second JMSL Offer did not fully represent or reflect the

value of a control position in petitioner and (2) the

transactions contemplated by the Agreement in Principle,

including the First HBC Offer, were, taken as a whole, superior

to the Second JMSL Offer and the possible second-step merger

involving petitioner proposed by JMSL.

     The First HBC Offer and the Second JMSL Offer spawned

extensive litigation among the interested parties.    See, e.g.,

Pabst Brewing Co. v. Kalmanovitz, 551 F. Supp. 882 (D. Del.

1982); Jacobs v. G. Heileman Brewing Co., 551 F. Supp. 639

(D. Del. 1982).    On November 17, 1982, the District Court

preliminarily enjoined JMSL, PST, the Jacobs Group, and

Kalmanovitz from consummating the Second JMSL Offer unless

additional disclosures were mailed by JMSL to petitioner's

shareholders.    In response, JMSL mailed to petitioner's

shareholders an amendment to the Second JMSL Offer, dated
                               - 13 -

November 18, 1982, purporting to make the additional disclosures

ordered by the District Court and raising its offer price to

$30 per share for the 3 million shares it was seeking.    On

November 23, 1982, JMSL announced in a press release that it had

again increased the Second JMSL Offer price to $35 per share.    On

November 24, 1982, the District Court denied the motion of the

Jacobs Group and Kalmanovitz for a preliminary injunction against

the First HBC Offer.

     On November 22, 1982, the Justice Department's antitrust

division filed a civil suit against petitioner and Heileman, a

stipulation, and a proposed final judgment (1982 Consent Decree)

in the District Court.   See United States v. G. Heileman Brewing

Co., 563 F. Supp. 642 (D. Del 1983).    The complaint alleged that

competition in the United States beer industry might be

substantially lessened if Heileman acquired and exercised control

over petitioner and Olympia.   Petitioner and Heileman agreed to

be bound by all of the terms of the 1982 Consent Decree pending

its approval by the District Court.     After reviewing the proposed

1982 Consent Decree to determine whether it was in the public

interest, the District Court approved and entered it.    The 1982

Consent Decree ensured that the essential terms of the Agreement

in Principle, including Heileman's acquisition of the Transferred

Assets and the transfer of the other assets to unrelated parties,

would be consummated.    In relevant part, the decree provided that

Heileman intended to acquire only certain assets of petitioner
                                - 14 -

and Olympia and that it did not intend to acquire or exercise

control over any other asset.    The decree also provided:

          A. Until the appointment of a trustee under this
     Final Judgment, Heileman shall be free to vote in any
     manner the stock of Pabst, subject to * * * [the
     Justice Department's] prior approval. Heileman shall
     not otherwise manage or control Pabst or Olympia in any
     manner directly or indirectly. Furthermore, Heileman
     shall not have access to any confidential business
     information, data or records of Pabst or Olympia
     concerning the Non-Retained Assets. Heileman shall
     have access to confidential business information, data
     and records of Pabst and Olympia concerning the
     Retained Assets; provided, however, that such access
     shall only take the form of the submission of written
     material to Heileman by Pabst and Olympia (unless * * *
     [the Justice Department] specifically agrees otherwise)
     and provided further that * * * [the Justice
     Department] shall be furnished with copies of all
     materials furnished to Heileman at the same time as
     such materials are furnished to Heileman.

     On November 24, 1982, HBC amended the First HBC Offer by

decreasing the number of petitioner's shares sought from 5.5

million to 4.25 million.   As a result, Jacobs believed that the

First HBC Offer would prevail and that he might be shut out of

the related proration pool.   That afternoon, Jacobs telephoned

Heileman's president, Russell G. Cleary (Cleary), in order to

discuss the terms of a possible settlement.    Jacobs told Clearly

that JMSL would withdraw from the bidding for petitioner's shares

in exchange for payment of its legal and related expenses

totaling $7.5 million.

     On November 26, 1982, Heileman, HBC, petitioner, and the

Jacobs Group announced a settlement (Settlement Agreement), with

the Jacobs Group breaking off its relationship with Kalmanovitz
                              - 15 -

and supporting a new HBC tender offer.   Pursuant to the

Settlement Agreement, the members of the Jacobs Group agreed to

cease their participation in the Second JMSL Offer and HBC agreed

to terminate the First HBC Offer and to commence a new tender

offer for petitioner's shares at $29 per share.   The Settlement

Agreement also provided that the members of the Jacobs Group

would tender their approximately 1.14 million shares of

petitioner (Jacobs Group Shares) into a second HBC offer (Second

HBC Offer).   The Settlement Agreement further provided that the

Jacobs Group granted to petitioner an option to purchase all of

the Jacobs Group Shares not purchased in the Second HBC Offer or

sold by the Jacobs Group prior to the exercise of the option.

The option had to be exercised during certain option periods, but

in no event later than June 30, 1983.    Petitioner never exercised

the option or otherwise repurchased any shares from the Jacobs

Group.5




     5
       The Settlement Agreement contained several other
provisions. For example, the Jacobs Group agreed that none of
its members (nor an affiliate of any member) would offer to
purchase or otherwise acquire any shares of petitioner, HBC,
Olympia, or any affiliate or successor to those corporations, for
a period of 5 years. The parties to the Settlement Agreement
also agreed to take all steps necessary to terminate with
prejudice most of the litigation pending between them. As long
as no Jacobs Group Shares were withdrawn from the Second HBC
Offer, the Jacobs Group was entitled under the Settlement
Agreement to a cash payment of $7.5 million for its legal and
related expenses, with the cost to be split equally between
Heileman and petitioner.
                               - 16 -

     On November 26, 1982, Jacobs called Kalmanovitz to inform

him of the Settlement Agreement.    Kalmanovitz refused to join in

the Settlement Agreement.

     Pursuant to the Settlement Agreement, HBC terminated the

First HBC Offer on November 30, 1982, and, 2 days later, HBC

commenced the Second HBC Offer for 3.75 million shares of

petitioner at $29 per share, with HBC reserving the right to

purchase up to 5.6 million shares at that price.    On December 3,

1982, JMSL terminated the Second JMSL Offer.

     On December 6, 1982, 21-115, Inc., a corporation owned by

Paul and Lydia Kalmanovitz, commenced a tender offer for 4.15

million shares of petitioner at $32 per share (First Kalmanovitz

Offer).    The First Kalmanovitz Offer provided that, if 4.15

million shares were purchased pursuant thereto, the remaining

shares would be redeemed in exchange for petitioner's 15-percent

subordinated notes with a principal amount of $26 each.    On

December 10, 1982, Kalmanovitz and another company owned by him

brought an action in the District Court against Heileman, Cleary,

HBC, petitioner, and Smith to stop the Second HBC Offer.    See

Kalmanovitz v. G. Heileman Brewing Co., 595 F. Supp. 1385 (D.

Del. 1984), affd. 769 F.2d 152 (3d Cir. 1985).    The court denied

Kalmanovitz' request.

     HBC amended the Second HBC Offer on December 10, 1982,

increasing the number of petitioner's shares sought to 5.6

million.    On December 15, 1982, Heileman amended the Second HBC
                               - 17 -

Offer again to increase the price per share to $32. On

December 22, 1982, 21-115, Inc., raised the price in the First

Kalmanovitz Offer to $40 per share and increased the annual

interest rate on the proposed subordinated notes to 18 percent.

     As of 12 a.m. on December 23, 1982, the deadline for

withdrawal under the Second HBC Offer, approximately 6.7 million

of petitioner's shares remained tendered to HBC.    Later on that

day, HBC accepted 5.6 million of these shares for payment at

$32 per share (total price of $179.2 million), thereby completing

the Second HBC Offer.    The 5.6 million shares represented

approximately 68 percent of petitioner's 8,185,541 outstanding

shares.    On December 28, 1982, 21-115, Inc., terminated the First

Kalmanovitz Offer.    Thereafter, Kalmanovitz filed two lawsuits

seeking damages against Heileman, Cleary, petitioner, Smith, HBC,

and the Jacobs Group.

     Following the successful completion of the Second HBC Offer,

and pursuant to the Agreement in Principle, petitioner entered

into several written agreements with Heileman, HBC, PBC, and

Olympia, including an acquisition agreement dated December 30,

1982, and amended February 24, 1983 (Acquisition Agreement).    The

transaction that actually occurred as a result of these

agreements differed in form from the transaction originally

contemplated by the Agreement in Principle.6   Under the Agreement

     6
         For a diagram of the transaction that actually occurred,
                                                     (continued...)
                              - 18 -

in Principle, Heileman was to obtain the assets it desired

through a merger with Olympia and petitioner, and Heileman was to

spin off the unwanted assets to unrelated parties.     Under the

Acquisition Agreement, which reflects the transaction actually

carried out, Heileman did not merge with Olympia or petitioner.

Instead, Olympia merged into petitioner, and the merged entity

(petitioner) distributed certain assets to Heileman "in exchange

for" all of Heileman's shares of HBC, whose sole asset was

petitioner's stock acquired in the successful tender offer.7       The

5.6 million shares of petitioner's stock held by HBC prior to the

transaction were canceled.   Heileman had paid $179.2 million to

purchase these shares on December 23, 1982, pursuant to the

tender offer.

     The following assets were distributed to Heileman on

March 18 and 19, 1983, pursuant to the actual transaction:

(1) Petitioner's brewery in Perry, Georgia; (2) petitioner's

brewery in Portland, Oregon; (3) the Blitz-Weinhard,

Henry-Weinhard Private Reserve, Blitz economy, Red, White & Blue,


     6
      (...continued)
see Pabst Brewing Co. v. Commissioner, T.C. Memo. 1995-239.
     7
       Because HBC was a wholly owned subsidiary of Heileman,
whose sole function was to facilitate the tender offer, for
convenience we sometimes refer to Heileman's surrender of its HBC
stock as a surrender by Heileman of the 5.6 million shares of
petitioner's stock held by HBC. The parties themselves
sometimes refer to the surrender of these shares as coming
directly from Heileman, and this simplification does not affect
our holdings.
                             - 19 -

and Burgermeister beer brands, as well as all related light

products; (4) 100,000 kegs in addition to the kegs which were

included as part of the breweries in Perry and Portland;

(5) $10 million in surplus assets selected by petitioner and

Heileman; (6) petitioner's office building and related parking

areas in Milwaukee, Wisconsin; (7) nonbrewery assets which

included certain surplus bottles and real estate situated in

Milwaukee; (8) net working capital aggregating at least $30

million; (9) Olympia's brewery in San Antonio, Texas; (10) the

Lone Star and Buckhorn (Texas) beer brands and related light

products; (11) real estate in the State of Washington; and

(12) any other assets listed in the Allocation Agreement.

     In addition to its surrender of the shares which were

canceled, Heileman assumed a $3.48 million liability for certain

industrial development revenue bonds (IDB's) as consideration for

the distribution of the assets.   The IDB's represented financing

for the Olympia Lone Star brewery in San Antonio, which was

transferred to Heileman as part of the Transferred Assets.

Petitioner also paid Heileman $4.25 million in cash on March 18,

1983, in redemption of 400,005 shares of stock in petitioner

(approximately 5 percent of petitioner's outstanding shares)

acquired by Heileman prior to the tender offer, and petitioner

added these shares to its treasury stock.   Heileman had

previously paid $7,607,325 to acquire these shares.   In addition,

petitioner and Heileman entered into a 5-year manufacturing
                                  - 20 -

agreement whereby petitioner was required to purchase specified

amounts of beer at a designated markup over actual cost, the beer

to be brewed by Heileman at the Perry facility, and Heileman

agreed to lease petitioner the office building and related

parking areas in Milwaukee.

     Petitioner and Heileman also entered into the Allocation

Agreement, dated February 10, 1983, whereby they agreed to the

price to be allocated to each of the Transferred Assets.    The

Allocation Agreement states that Heileman and petitioner "hereby

agree that for purposes of determining exchange values between

them in connection with the acquisition of various assets", the

Transferred Assets total $190,287,375.8    The Allocation Agreement

further states:

     The price to be allocated is as follows:

     Cash                                  $4,250,000
     Working capital                       30,000,000
     100,000 kegs                           2,500,000
     1,000,000 cases of select bottles      1,000,000
     Other kegs, bottles, cases, pallets    3,500,375
     Other assets                          10,000,000
     Brands and distributors                1,500,000

     Georgia plant:


     8
       This total is derived from the sum of: (1) The price paid
by Heileman for the 5.6 million tendered shares that were
redeemed in the transaction ($179.2 million), (2) the price paid
by Heileman for the 400,005 shares of petitioner that Heileman
owned prior to the tender offer, which were also redeemed in the
transaction ($7,607,325), and (3) the $3.48 million of IDB's that
were assumed by Heileman pursuant to the transaction. The record
does not explain the $50 difference between the sum of these
three amounts ($190,287,325) and the figure contained in the
Allocation Agreement ($190,287,375). We find the $50 difference
insignificant for purposes of deciding this case.
                                   - 21 -
       Land                                       864,000
       Building                                29,747,000
       Machinery & equipment                   58,731,000
       Construction in progress                 1,170,000
     Portland:
       Land                                     3,140,000
       Building                                 5,290,000
       Machinery & equipment                   12,789,000
       Construction in progress                   220,000

     San Antonio:
       Land                                    1,196,000
       Building                                5,190,000
       Machinery & equipment                   6,300,000

     Washington land:
     Milwaukee
       Office land                              1,000,000
       Office building                         10,000,000
       Other buildings                            875,000
       Other land                                 425,000
                                              190,287,375

          The parties agree they will take no action
     inconsistent with such valuation in filing their
     respective income tax returns.

     On February 26, 1983, petitioner and Olympia issued a

prospectus/proxy statement to their shareholders seeking approval

of the transaction described above.         On March 18, 1983, at

separate special meetings, the shareholders of petitioner and

Olympia approved and adopted the Acquisition Agreement and the

other relevant agreements.        Petitioner's shareholders who

dissented thereto were entitled to receive $27 a share for their

stock.   See Cooper v. Pabst Brewing Co., No. Civ. A. 7244 (Del.

Ch., June 8, 1993) (dissenting shareholders' stock appraised at

$27 per share).

     Petitioner's shareholders of record at the time of the

transaction (excluding Heileman, HBC, petitioner, any of their

subsidiaries, and any shareholders asserting their appraisal
                              - 22 -

rights) had each of their shares converted into one $24 principal

amount 15-percent subordinated, sinking fund note of petitioner

with a 10-year maturity.9   As a result, the former shareholders

of petitioner, other than Heileman, had no further equity

interest in petitioner following the transaction.

     Olympia stockholders of record at the time of the

transaction had each of their Olympia shares converted into the

right to receive:   (1) One share of petitioner's stock and

(2) cash equal to the excess, if any, of $26 per share over the

average market value of petitioner's shares during a specified

11-day trading period.   As a result, the former Olympia

shareholders became petitioner's new shareholders following the

transaction.

     On its tax returns, petitioner reported the distribution of

the Transferred Assets as a sale subject to section 1001, and it

used the $190,287,375 amount set forth in the Allocation

Agreement as the amount realized on the sale.   For the taxable

period January 1 through March 18, 1983, petitioner reported a

net gain of $40,362,574 resulting from the transfer of some of

the Transferred Assets to Heileman on the latter date.     For the

taxable period March 19 through December 31, 1983, petitioner

     9
       In order to discourage future hostile takeover attempts,
tender offers, and proxy contests, certain provisions of the
indenture, pursuant to which these notes were issued, limited the
incurrence of indebtedness for the purpose of acquiring
petitioner's shares. Petitioner also amended its certificate of
incorporation.
                              - 23 -

reported a net gain of $23,840,818 resulting from the transfer of

the remainder of the assets to Heileman on the former date.

     Respondent, as reflected in her notice of deficiency,

determined that the fair market value of the Perry and Portland

breweries and the brands of beer exceeded the values reported by

petitioner.   On June 6, 1996, petitioner amended its petition to

raise the issue of the fair market value of the San Antonio

brewery.

     In 1983, there was a market for brewing assets, and there

were brewers that could have purchased and utilized the relevant

breweries, as well as the brands of beer.

                              OPINION

     Following a 3-day trial, we must decide the fair market

values of the Transferred Assets.    The parties have agreed that

the values of certain assets equal the amounts set forth in the

Allocation Agreement, leaving the Court to decide the values of

the Perry, Portland, and San Antonio breweries, as well as the

brands of beer.   The record is replete with charts, graphs, data,

testimony, and expert opinion.    We must evaluate all of the

evidence and render a judgment.    As the Court has observed, the

valuation of property is an inexact science, and, if not settled

by the parties, must be resolved by the judiciary by way of

"Solomon-like" pronouncements.    Buffalo Tool & Die Manufacturing

Co. v. Commissioner, 74 T.C. 441, 452 (1980); Messing v.

Commissioner, 48 T.C. 502, 512 (1967); see also Mandelbaum v.
                               - 24 -

Commissioner, T.C. Memo. 1995-255, affd. without published

opinion 91 F.3d 124 (3d Cir. 1996).

     As typically occurs in a case of valuation, the parties rely

primarily on their experts' testimony and reports to support the

parties' contrary positions on the valuation issue.   Expert

testimony sometimes aids the Court in determining valuation.

Other times, it does not.10   The Court is not bound by an opinion

of an expert.   Aided by our common sense, we weigh the

helpfulness and persuasiveness of an expert's testimony in light

of his or her qualifications and in the context of all other

credible evidence in the record.   Depending on what we believe is

appropriate under the facts and circumstances of the case, we may

reject an expert's opinion in its entirety, accept it in its

entirety, or accept only selective portions of it.    Helvering v.

National Grocery Co., 304 U.S. 282, 294-295 (1938); Goldstein v.

Commissioner, 298 F.2d 562, 567 (9th Cir. 1962), affg. T.C. Memo.

1960-276; In re Williams Estate, 256 F.2d 217, 219 (9th Cir.

1958), affg. T.C. Memo. 1956-239; Seagate Technology v.

Commissioner, 102 T.C. 149, 186 (1994); Parker v. Commissioner,

86 T.C. 547, 562 (1986).   The Court has previously rejected an

expert's testimony as incredible when the expert's opinion of

value was so exaggerated as to make it unrealistic.   See Chiu v.


     10
       For example, expert testimony is not useful to the Court
when the expert is merely an advocate for the position argued by
the party. Laureys v. Commissioner, 92 T.C. 101, 129 (1989).
                                 - 25 -

Commissioner, 84 T.C. 722 (1985); Dean v. Commissioner, 83 T.C.

56, 75 (1984); Fuchs v. Commissioner, 83 T.C. 79, 99 (1984).

     Petitioner must prove that respondent's determination of

fair market value set forth in her notice of deficiency is

incorrect.   Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).   Petitioner must also prove that the fair market value of

the San Antonio brewery is different than the value reported on

its tax return.   Rule 142(a).    A determination of fair market

value is factual, and a trier of fact must weigh all relevant

evidence of value and draw appropriate inferences.     Commissioner

v. Scottish Am. Inv. Co., 323 U.S. 119, 123-125 (1944);

Helvering v. National Grocery Co., supra at 294; Hamm v.

Commissioner, 325 F.2d 934, 938 (8th Cir. 1963), affg. T.C. Memo.

1961-347; Skripak v. Commissioner, 84 T.C. 285, 320 (1985);

Zmuda v. Commissioner, 79 T.C. 714, 726 (1982), affd. 731 F.2d

1417 (9th Cir. 1984).   Fair market value is the price that a

willing buyer would pay a willing seller, both persons having

reasonable knowledge of all relevant facts and neither person

being under any compulsion to buy or to sell.     Sec. 20.2031-1(b),

Estate Tax Regs.; see also United States v. Cartwright, 411 U.S.

546, 551 (1973); Kolom v. Commissioner, 644 F.2d 1282, 1288 (9th

Cir. 1981), affg. 71 T.C. 235 (1978); Estate of Hall v.

Commissioner, 92 T.C. 312, 335 (1989).     The willing buyer and the

willing seller are hypothetical persons, rather than specific

individuals or entities, and the characteristics of these
                              - 26 -

hypothetical persons are not necessarily the same as the personal

characteristics of the actual seller or a particular buyer.

Propstra v. United States, 680 F.2d 1248, 1251-1252 (9th Cir.

1982); Estate of Bright v. United States, 658 F.2d 999, 1005-1006

(5th Cir. 1981); Estate of Jung v. Commissioner, 101 T.C. 412,

437-438 (1993); Estate of Newhouse v. Commissioner, 94 T.C. 193,

218 (1990); Minihan v. Commissioner, 88 T.C. 492, 499 (1987).

     Fair market value is determined as of the valuation date,

and no knowledge of unforeseeable future events which may have

affected the value is given to the hypothetical persons.

Sec. 20.2031-1(b), Estate Tax Regs; see also Estate of Newhouse

v. Commissioner, supra at 218.   Fair market value equals the

highest and best use to which the property could be put on the

valuation date, and fair market value takes into account special

uses that are realistically available due to the property's

adaptability to a particular business.   Mitchell v. United

States, 267 U.S. 341, 344-345 (1925); Symington v. Commissioner,

87 T.C. 892, 896 (1986); Stanley Works & Subs. v. Commissioner,

87 T.C. 389, 400 (1986).   Fair market value is not affected by

whether the owner has actually put the property to its highest

and best use.   The reasonable, realistic, and objective possible

uses for the property in the near future control the valuation

thereof.   Olson v. United States, 292 U.S. 246, 255 (1934);

United States v. Meadow Brook Club, 259 F.2d 41, 45 (2d Cir.

1958); Stanley Works & Subs. v. Commissioner, supra at 400.
                              - 27 -

Elements affecting value that depend upon events or a combination

of occurrences which, while within the realm of possibility, are

not reasonably probable, are excluded from this consideration.

Olson v. United States, supra at 257.

     Petitioner claims that the fair market values of the subject

assets were "significantly less" than the amounts included in the

Allocation Agreement.   Petitioner supports its statement with the

testimony of its two experts, Arthur J. Tonna (Tonna) and

Gilbert E. Matthews (Matthews).   Tonna has worked for more than

40 years in the brewing industry, approximately 18 years of which

he has been employed as the senior or executive vice president of

the operations of a major brewer.   He has participated in major

brewery sales, including brands, and he has purchased the used

facilities and equipment of breweries undergoing liquidation.

He has previously testified in this Court as an expert on the

value of brewery equipment and machinery.   Matthews received a

bachelor of arts degree from Harvard in 1951, and he received a

master's degree in business administration from Columbia in 1953.

From 1970 through 1995, he chaired the valuation committee for

Bear Stearns, and he was responsible for more than 1,000 of the

firm's valuation opinions, most of which concerned the purchase

or sale of companies in a wide range of industries.   He has

authored a book on fairness opinions and common stock valuations,

and he has previously testified as an expert on valuation before

this and other Federal courts.
                               - 28 -

     Respondent supports her determination with the testimony of

her expert, Robert S. Weinberg (Weinberg).    Weinberg is the

president of R.S. Weinberg & Associates (RSWA), a consulting firm

that he founded in 1971 to assist senior management in developing

an analytical basis for corporate strategy.    He earned bachelor

of science and master's degrees in economics from New York

University and Columbia University's Graduate School of Business,

respectively.   He began working in the brewing industry in 1966,

as a vice president of Anheuser Busch in charge of long-term and

strategic planning, and he remained at Anheuser-Busch until he

founded RSWA.

     Each expert ascertained his valuations by using a different

methodology.    Tonna valued the breweries by reviewing data that

he amassed on the sales of nine other breweries between 1974

through 1991, which he believed to be comparable to the breweries

before us.   He subjectively extrapolated the values of the

subject breweries from the range of the selling prices listed in

the data.    Tonna's report does not fully describe the property

that was the subject of each reviewed sale, and it does not

explain the methodology that he used to value the brands of beer.

     Matthews arrived at his valuations by assuming that the fair

market value of the Transferred Assets equaled the difference

between:    (1) The fair market value of petitioner and Olympia

combined and (2) the fair market value of the assets not

transferred to Heileman (i.e., the fair market value of the new
                              - 29 -

entity (New Pabst) of which Heileman was not a shareholder).

He ascertained the fair market values of petitioner, Olympia, and

New Pabst by reference to objective market price data, including

the competitive bids for the stock of Olympia and petitioner.

He did not ascertain a specific value for each of the breweries

and brands of beer.   Rather, he ascertained an aggregate value

for all of the Transferred Assets.

     In general, Weinberg valued the breweries and some of the

brands of beer by way of a five-step discounted cash-flow model

that he designed.   First, he estimated the size of the total

market in total barrels and the expected share of the market that

a company or product could capture.     Second, he used these

estimates to project future sales.     Third, he modeled the cost

structure to measure the profits (or contribution to cash flow)

associated with a given level of sales.     Fourth, he projected

future profit from the projection of sales and the model of cost

structure.   Fifth, he discounted the future stream of profit to

arrive at its present value in 1983.     Weinberg did not reference

comparable sales because, he stated, he does not find them

meaningful in the beer industry and he could not find any.
                                     - 30 -

        The experts' conclusions on valuation, as well as the

amounts listed in the Allocation Agreement and the notice of

deficiency, are as follows:11

                   Allocation    Notice of
Asset              Agreement    Deficiency    Weinberg       Tonna       Matthews

Perry Brewery
  Land               $864,000 $1,053,845         ---           ---         ---
  Building         29,747,000 36,283,242         ---       $12,800,000     ---
  M&E              58,731,000 71,635,832         ---        10,000,000     ---
  C-in-P            1,170,000   1,427,081        ---            ---        ---
                   90,512,000 110,400,000    105,100,000    22,800,000     ---

Portland Brewery
  Land              3,140,000    3,544,382       ---          ---          ---
  Building          5,290,000    5,820,807       ---        6,500,000      ---
  M&E              12,789,000   14,586,479       ---        4,000,000      ---
  C-in-P              220,000      248,332       ---          ---          ---
                   21,439,000   24,200,000    42,100,000   10,500,000      ---

San Antonio Brewery
  Land             1,196,000      ---            ---          ---          ---
  Building         5,190,000      ---            ---        3,000,000      ---
  M&E              6,300,000      ---            ---        2,500,000      ---
                  12,686,000      ---         25,200,000    5,500,000      ---

Brands of Beer
  Lone Star          ---         ---          13,800,000      725,800      ---
  Henry Weinhard     ---         ---          70,500,000      854,626      ---
  Red, White & Blue ---          ---           8,900,000      648,156      ---
  Buckhorn           ---         ---             ---           21,925      ---
  Burgermeister      ---         ---             ---          104,668      ---
  Blitz-Weinhard     ---         ---             ---          246,795      ---
  Bohemian           ---         ---             ---          108,288      ---
  Bavarian           ---         ---             ---           28,007      ---
  Cascade            ---         ---             ---           12,242      ---
                   1,500,000 18,200,000       93,200,000     2,750,507     ---
Total            126,137,000 152,800,000     265,600,000    41,550,507

Assets whose
  value is not in
  dispute herein 64,150,375       ---           ---           ---          ---



        11
       Tonna valued the land and building together, and we show
that total value under the categories of "Building". Matthews
ascertained that the value of the Transferred Assets was in the
range of $113 to $147 million, and was approximately $130
million. We show this amount as $130 million. We use the
shorthand "M&E" and "C-in-P" to refer to "machinery and
equipment" and "construction in process", respectively.
                                  - 31 -
Total--Transferred
  Assets         190,287,375    ---        ---        ---     130,000,000

     We do not accept the conclusions of any of the experts in

toto, but we find parts of each of their opinions to be helpful

in understanding the operation of the beer industry.12        With

respect to Tonna, we find his testimony on the valuation issue to

be unpersuasive.     Although he valued the subject breweries by

reference to the sales of other breweries which he believed to be

comparable, the dates of many of the purportedly comparable sales

were too far removed from the valuation date at hand to allow for

a meaningful comparison.       Wolfsen Land & Cattle Co. v.

Commissioner, 72 T.C. 1, 19-20 (1979).       Moreover, Tonna's report

does not set forth enough data on these other breweries to allow

the Court to make a meaningful comparison.       Although his report

states the barrel capacity of his comparable breweries as well as

certain other information with respect thereto, we do not know,

for example, the quality, quantity, or attributes of the

machinery and equipment, the size of the building, or the amount

of land that were included in each purportedly comparable sale.

We also do not know the particularities of any other asset that

may have been included in each sale.       A proffered comparable sale

without enough identifying data to explain the components of the

sale is usually unhelpful to the Court in valuing property.


     12
       In this regard, we will deny a motion made by petitioner
at trial (and taken by the Court under advisement) to strike
Weinberg's testimony.
                              - 32 -

See Tripp v. Commissioner, 337 F.2d 432, 434 (7th Cir. 1964),

affg. T.C. Memo. 1963-244; see also Estate of Fittl v.

Commissioner, T.C. Memo. 1986-452.     In order for the Court to

value property under a comparable sales methodology, we must

first be satisfied that the qualities of the properties which

provide the market benchmark are substantially similar to the

property for which the value is sought, or that proper

adjustments may be made to account for any differences.

Estate of Palmer v. Commissioner, 839 F.2d 420, 424 (8th Cir.

1988), revg. on other grounds 86 T.C. 66 (1986); Wolfsen Land &

Cattle Co. v. Commissioner, supra at 19-20.     We are not so

satisfied in this case.

     We also are troubled by the fact that Tonna's methodology

inappropriately focuses on the views of the buyer, to the

exclusion of the seller.   See Mandelbaum v. Commissioner, T.C.

Memo. 1995-255 (expert's disregard for the views of a willing

seller may be fatal to the expert's opinion); see also Estate of

Cloutier v. Commissioner, T.C. Memo. 1996-49.     Although a buyer

would most likely want to purchase the subject assets at Tonna's

ascertained values, the test of fair market value rests on the

concept of a hypothetical willing buyer and a hypothetical

willing seller.   Ignoring the views of the willing seller is

contrary to this well-established test, and, as mentioned above,

may be fatal.   In this regard, our reading of Tonna's report does

not persuade us that he ever considered whether a hypothetical
                              - 33 -

willing seller would sell the subject assets for the values that

he ascertained.   We find doubtful that a hypothetical brewing

company would be willing to do so, if it were not under a

compulsion to sell.   Indeed, Tonna's adjustments to the prices of

his comparable sales seem to be based primarily on the acumen

that he acquired purchasing brewery equipment at the auctions of

competitors that were undergoing liquidation.   Although these

prior purchases may reflect the price that a reasonable buyer

would pay for brewery equipment at an auction, we do not believe

that the purchases reflect the price at which a reasonable seller

would sell the asset if the seller were not forced to sell its

assets in liquidation.   We also note that it is very relevant

that Tonna begins the valuation portion of his report by stating

that "A brewery is only worth what a buyer will pay for it", and

that he believes (but we do not) that the value of used brewery

equipment is inherently low because the equipment is large and

bulky, and it is expensive to move from one location to another.

     We are no more persuaded by the conclusion of Matthews as to

the aggregate value of the subject assets.   Although Matthews is

the only expert with hands-on experience in the field of

valuation, we do not believe that his methodology of valuing

stock to ascertain the fair market value of the underlying assets

is accurate under the facts herein.    In Matthews' mind, the value

of the subject assets at the time of valuation was approximately

$66 million; i.e., his $130 million value for all the Transferred
                               - 34 -

assets less the $64,150,375 value of the other Transferred Assets

that are not in dispute herein.    We do not believe that the

record supports such a valuation.    Once again, we are not

persuaded that a hypothetical seller would sell the subject

assets at this price.

     Nor are we persuaded by the valuation conclusions of

Weinberg.   We observe that Weinberg is knowledgeable about the

beer industry.    The fact that Weinberg is knowledgeable about

this industry, however, does not compel us to credit his

testimony on the Transferred Assets' fair market value for

Federal income tax purposes.    At trial, we informed respondent's

counsel that we considered Weinberg to be knowledgeable on the

beer industry, but that we had serious doubts as to his ability

to render a persuasive opinion on the fair market value of the

subject assets.   We continue to harbor such doubts after

thoroughly considering Weinberg's testimony with the benefit of

the record as a whole.   First, Weinberg's expertise centers on

advising clients in the brewing industry on new opportunities,

and we do not find that he has expertise in valuing assets for

Federal income tax purposes.    The thrust of Weinberg's expertise

centers on marketing, economics, and the like, rather than on the

ascertainment of fair market value for Federal income tax

purposes.   We also note that Weinberg had never previously

testified as an expert on the appraisal or valuation of breweries

or brewing companies.
                               - 35 -

     Second, we are disturbed by Weinberg's lack of regard for

comparable sales.    According to Weinberg, the brewing industry

generally does not lend itself to a valuation by comparable sales

because potential buyers change so rapidly in the industry.

Weinberg testified that it was impossible for him to find sales

of property comparable to the subject property because he

considers a sale comparable only when the breweries are

technically identical, the transactions occur during the same

time period, and the potential purchasers are the same.    We do

not agree.   Although it is true that the date of a sale should be

relatively close in time to a valuation date in order to be

meaningful, we are unpersuaded that the brewing industry does not

lend itself to one of the most accurate forms of valuation (i.e.,

comparable sales).   After carefully reviewing the sales of

breweries that Tonna referenced as comparable to the breweries in

this case, we believe that some of these sales might have been

useful to our decision had they been properly developed.

     Third, we are disturbed by the fact that Weinberg did not

actually appraise or value the assets at issue.    Instead, he

analyzed a combination of the assets as a potential profit

opportunity.   When viewed against all evidence in the record,

including the reports of the other experts, we find his analysis

unpersuasive in establishing the fair market value of any of the

assets for Federal income tax purposes.    We find that his

conclusions on the values of the subject assets are too high.
                                - 36 -

He ascertained that the fair market value of the brands of beer

was $93.2 million.    This amount is more than $90 million higher

than both the amount shown in the Allocation Agreement and the

amount ascertained by Tonna.     It is approximately $90 million

higher than the amount determined by respondent.     It is almost

three-fourths of the amount of the total consideration that

Heileman paid for all of the Transferred Assets.

     Fourth, Weinberg testified that the income production

capability of a brewery's assets is the only measure of the

assets' fair market values because brewery assets have value only

to another brewery.    We are not persuaded.   Although Weinberg may

be correct with respect to certain types of machinery and

equipment which are specially customized to the brewing industry,

a fact that we do not find, we are not persuaded that the same

would hold true with respect to a brewery's land and/or building.

     Having disregarded the valuation portion of all of the

experts' opinions, we are left to determine the fair market value

of the subject assets from the record before us.     See Tripp v.

Commissioner, 337 F.2d at 434; Goldstein v. Commissioner,

298 F.2d at 567.     An actual sale of stock may be relevant in

measuring the value of the underlying corporate assets.     See

Kalmon Shoe Manufacturing Co. v. Commissioner, 321 F.2d 189 (8th

Cir. 1963), affg. T.C. Memo. 1962-56; Schmick v. Commissioner,

3 B.T.A. 1141 (1926); Hinkel v. Motter, 39 F.2d 159 (D. Kan.

1930); see also Ingram-Richardson, Inc. v. Commissioner, T.C.
                               - 37 -

Memo. 1972-157.   Under the unique facts at hand, we conclude that

the value of the Transferred Assets was sufficiently related and

inextricably bound to the value of the tendered common stock to

allow us to rely on the tendered price as reflective of the fair

market value of the Transferred Assets.    The climate of the beer

industry leading up to the subject transaction was such that a

brewer's assets were in demand by most of its competitors, and

many smaller breweries were willing to sell their assets to a

competitor.    Many unrelated persons (including Heileman, Jacobs,

and Kalmanovitz) were attempting to acquire control over

petitioner, which would inevitably include control over

petitioner's assets, and an arena of competitive, arm's-length

bidding was created from the various attempts to acquire that

control.   All of these persons were extremely knowledgeable of

the beer industry and the business world in general, as well as

the worth of breweries and brewery assets such as those breweries

and assets that are before us today.    Although everyone

ostensibly bid for petitioner's stock, rather than its assets,

petitioner's management aimed during the bidding war to allow

petitioner's shareholders to realize petitioner's underlying

asset value.   The bidding and negotiations related thereto were

driven with that thought in the mind of petitioner's management,

and the fiduciary obligations of petitioner's management (as well

as of the Board) forced them to resist any attempt to buy

petitioner's stock for less than petitioner's intrinsic value.
                              - 38 -

     The transaction between Heileman and petitioner resulted in

Heileman's acquiring the desired assets of petitioner.    Heileman

wanted these assets in order to broaden its presence in the

marketplace.   In general, all of the suitors of petitioner's

stock wanted to buy specific assets of petitioner, and they were

not hesitant about discarding the undesired assets.    From the

suitors' point of view, it generally was not the stock that they

ultimately wanted; it was petitioner's assets.   The 1982 Consent

Degree, for example, mandated that Heileman could keep only some

of petitioner's assets.   Likewise, the Agreement in Principle

provided for Heileman to retain certain assets of petitioner,

while disposing of the rest; the Put Agreement surrounding the

First JMSL Offer contemplated the relinquishment of some of

petitioner's assets; and the Second JMSL Offer contemplated a

second step merger involving petitioner.   In order for Heileman

or any of the other suitors to get the assets that they desired,

however, they needed to purchase petitioner's stock.

     We believe that petitioner and its suitors both desired to

transfer the stock (and the assets that went along therewith) at

the best price possible, from each side's point of view, and that

each side fought intensely to reach its desired end.    Under the

facts herein, including the environment that was created by the

competitive bidding war, we believe that the $32 per share price

paid for petitioner's stock by Heileman is the best indicium of

the fair market value of petitioner's assets.    We recognize that
                                - 39 -

this $32 price is significantly higher than the value of the

stock as traded on the market before the bidding war materialized

in 1982.   All the same, we believe that the lower trading value

did not reflect the actual value of petitioner's assets, either

individually or as a whole.    We also believe that the lower bids

that were made for petitioner's stock at the start of the bidding

war were nothing more than attempts by the bidders to pay a

premium on the trading price of petitioner's stock, while buying

its more valuable assets at less than their fair market value.

In this regard, we reject petitioner's claim that some part of

the $32 tender price is a premium that Heileman paid to obtain

the Transferred Assets.   Although Heileman began its bidding at

$27.50 per share, the $32 price that it ultimately paid was

inevitably driven by the force of the market as to the actual

value of petitioner's assets.

     Respondent argues that the bidding war placed petitioner's

management in a state of duress because they knew that a takeover

of the company was imminent and inevitable.    Respondent alleges

that petitioner was forced to accept the Heileman proposal

because it wanted to avoid other takeover attempts.    Respondent

concludes that the "peculiar circumstances" of this case forced

petitioner to transfer its assets to Heileman for less than their

fair market value.   See Bixby v. Commissioner, 58 T.C. 757, 776

(1972).    We do not agree.   In contrast to respondent, we do not

believe that the subject transaction was driven by "peculiar
                               - 40 -

circumstances" that made petitioner willing to transfer its

assets to Heileman at less than their fair market value.    We also

do not find that petitioner and Heileman were compelled to buy or

to sell, although they both may have had individual motivations

for seeking a consummation of a deal between them.   We find from

the record that the parties to the transfer of the assets

thoroughly deliberated the transfer before it actually occurred.

Heileman began discussing a combination with petitioner in 1982,

and the Justice Department was consulted shortly thereafter to

express its views on the legality of such a combination.    We find

it hard to believe that the discussions between petitioner and

Heileman were anything but adversarial, legitimate, and at arm's

length, and we find nothing in the record to persuade us

otherwise.13   As brewers in the industry, both Heileman and

petitioner were knowledgeable of the industry and the details of

the transaction.   The agreement between them also had independent

business significance, undoubtedly adding to their realistic

economic assessment of the transaction.   Although the values

ascribed in the Allocation Agreement are not necessarily

determinative of the actual fair market values of the underlying


     13
       For example, the 1982 Consent Decree specifically
prohibited Heileman from managing or controlling petitioner or
Olympia in any manner directly or indirectly. We also bear in
mind that, during these discussions, the Board would have been
subject to a duty of loyalty to the minority shareholders, as
would any controlling shareholder. See Pepper v. Litton,
308 U.S. 295, 306 (1939).
                              - 41 -

assets, these values are very persuasive as to the assets' true

fair market value, given the fact that the parties to the

agreement were dealing at arm's length and the agreement had

independent economic significance.     See Elmhurst Cemetery Co. v.

Commissioner, 300 U.S. 37 (1937); Ullman v. Commissioner,

264 F.2d 305, 308 (2d Cir. 1959), affg. 29 T.C. 129 (1957);

Simons Brick Co. v. Commissioner, 45 F.2d 57 (9th Cir. 1930),

affg. 14 B.T.A. 878 (1928).

     For the foregoing reasons, we hold that the value of the

Transferred Assets equals the $190,287,375 of consideration that

Heileman remitted to petitioner in connection with the transfer.

Given the fact that neither party has challenged the Allocation

Agreement's allocation of this consideration, and that we see

nothing in the record that persuades us that the amount assigned

to each asset is not the fair market value of that asset, we

choose to respect each of the amounts listed therein, and we so

hold.   In reaching all of our holdings herein, we have considered

all arguments by the parties, and, to the extent not mentioned

above, find them to be irrelevant or without merit.

     To reflect the foregoing,

                                        Decision will be entered

                                 under Rule 155.
