The latest annual tax form called the 990 for the Otto Bremer Trust is now on the St. Paul foundation's website, and very deep in the document is a curious update to its 2018 filing.

In the 2018 tax return, the fair market value of the foundation's 90% or so stake in Bremer Financial Corp. was stated at not quite $900 million.

A year later the trust's stake in Bremer had shot to a fair market value of $1.8 billion.

One of those numbers had to be very wrong.

Bremer Financial did not double its earnings over one year. It did not double its book value. The trust arrived at its 2019 value through a third-party valuation, a trust spokesman confirmed.

Chances are both of those numbers were at least a little wrong, as there's no public market for stock in a closely held company, and fair market value is an estimate.

But this is the key to understanding the legal dispute that has been very public now for months between the Otto Bremer Trust and its trustees, and the board of directors and management of the bank.

It seems to be about control, but control and business value are so closely intertwined that it's impossible to peel them apart. And you can fairly argue that the trust has never been able to do whatever it wanted with Bremer Financial. That just wasn't the deal.

On one side of the dispute is the trustees — Charlotte Johnson, S. Brian Lipschultz and Daniel Reardon — who wanted to sell Bremer Financial, figuring that the cash realized in a sale would be worth more to the charitable trust than the bank can generate in dividends.

The Otto Bremer Trust serves a regional area in Minnesota, North Dakota and western Wisconsin that roughly overlaps with the markets served by Bremer Financial, which had about $13 billion in assets as of the end of 2019. The Bremer Trust granted about $57 million in 2019 to 650 or so recipients.

This philanthropy seems entirely in line with the wishes of the company's founder, German immigrant Otto Bremer. He established the trust in 1944, and his last remaining shares were put into the trust upon his death in 1951.

All was well with the trust as the sole owner of the bank until the 1980s. That's when the trust had to get in line with tax rules meant to restrict foundations that owned private companies from doing more or less whatever they wanted with them.

The foundation had to get down to no more than a 20% voting stake in the banking company. Part of the solution was to create two classes of Bremer Financial stock.

When this was all finally worked out, the trust owned all the B shares and a 92% interest in the company. The rest is owned by Bremer Financial officers, directors and employees. But the foundation ended up with only 20% of the votes.

The principal owner did not control the company. So what's that 92%, noncontrolling position really worth?

The book value of the company, the owners' value when you take the assets and subtract the liabilities, was about $1.29 billion at the end of 2019, according to a federal filing.

A rule of thumb applied here is that a healthy company should be worth at least 1½ times its book value. But there are couple of additional rules of thumb in business valuation that seem to also apply right away.

One standard discount is applied because there's no ready market for a closely held stock; it's not worth nearly as much as a comparable bank stock that's traded on the New York Stock Exchange. This is one of those things frequently argued about in business, but let's just call that discount 30%.

The second big discount comes from a lack of control. In this case it's probably enough to point out that if the trust actually had control of the company, it might have already sold the company and wouldn't be litigating the issues or publishing news releases about its latest legal claims.

Control is worth a lot in business — the ability to change the board of directors or the executive management or even send the company in a different strategic direction. There are routinely arguments over how big the discount for not having control would be, too, but 30% could again be a ballpark number.

The trust has gone after the company and its board, but that's not the only thing standing in its way of control. Even when the trust was the sole owner, there was also Otto Bremer.

His trust document sure reads like he meant for this company to remain owned by his foundation forever.

As spelled out, the trust could not sell the stock in the bank if it didn't pay enough in dividends or because owning a bank seemed to be a too-many-eggs-in-one-basket investment approach.

There is one out in the document, a line that the trustees can sell if it is "necessary or proper to do so owing to unforeseen circumstances."

That's a key issue in the litigation. But the market value of any asset, bank stock or used car, is going to be worth less if you have to win a complex lawsuit to actually try to sell it.

That brings up yet another curious thing, though, this notion that the lack of control has worked against the trust and its mission.

The bank has been performing really well, with record earnings last year and solid returns on assets and average equity. Last year the company paid the trust just over $80 million in dividends on its stock.

Foundations typically distribute at least 5% of net assets, and what the trust got last year in dividends is easily $20 million more than it would need to fund grants equal to 5% of the book value of its Bremer Financial stake.

If you really want to control the main asset of the trust and these roadblocks remain, you are likely still not happy. But there are far worse outcomes than collecting $80 million. • 612-673-4302