- 47 -
pro forma cash-flow by reducing the rate of return that he
thought an equity investor in Willits would require by 7 percent,
his estimate of Willits' long-term growth rate.
Using this method, Spiro concluded that the minority value
of the stock was $952 per share, before considering a liquidity
discount. After applying the 20-percent liquidity discount,
Spiro concluded that the fair market value of the stock was $732
per share.
To reconcile the results of the different methods, Spiro
weighted the results of the piecemeal sales method 40 percent,
the market method 35 percent, and the income method 25 percent,
and concluded that the fair market value of the stock was $774
per share.
We accept part of respondent's expert's opinion and reject
part. We reject the portion of the market method analysis in
which Spiro calculated Willits' price-to-earnings multiple from
the guideline companies' multiples because there is no
statistically significant correlation between the selected
companies' net income growth trends and their price-to-earnings
multiples.24
24The selected companies and their growth trends and price-
to-earnings ratios are as follows:
Growth Trends
Company 1-Year 3-Year P/E Ratios
Redwood Empire Bankcorp 148.56 32.22 9.02
(continued...)
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