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2. The McGraw Report
Petitioner's second expert, Kenneth W. McGraw, is managing
director of Patricof & Co. Capital Corp., an investment banking
firm. He has approximately 36 years of experience in finance
markets and investment banking.
Utilizing a comparative companies analysis, Mr. McGraw valued
the 1,226 shares of JPMS common stock at approximately $29 million.
(In this analysis, he used virtually the same group of comparable
public companies as Mr. Weiksner.) Mr. McGraw adjusted JPMS'
financial data in deriving an earnings model to which he applied
his comparable companies analysis. To represent the amount JPMS
would have to spend to replace the benefits of Mr. Mitchell's
services, Mr. McGraw estimated that additional expenditures for
advertising and administrative expenses would increase JPMS'
advertising and promotional expenses to 16 percent of total
revenues. He also removed Mr. Mitchell's compensation expense from
the financial data.19
Mr. McGraw reduced his approximate $109 million theoretical
publicly traded value for JPMS by an extraordinary risk discount,
through a 15-percent reduction to his average EBIT and average
EBITDA. Mr. McGraw then applied a 45-percent marketability
19 Mr. McGraw did not believe that a reduction in Mr.
DeJoria's compensation was a circumstance upon which a
prospective purchaser of the shares could reasonably depend.
Thus, he did not adjust Mr. DeJoria's historical compensation for
purposes of this analysis.
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