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According to Shapiro, because the various comparable methods
ignore a variety of relevant economic factors, including asset
turnover, profit margins, sales growth, return on investment, and
working capital requirements, he assigned more weight to the DCF
method. He concluded that the value of Schlegel UK was
$52.2 million in his original report but changed his conclusion
to $49.8 million based on adjustments made in his rebuttal
report.
Button
Button also used the DCF method to value Schlegel UK. In
calculating the cost-of-equity capital, Button used five
guideline companies to calculate unlevered beta, and he relevered
beta based on the median debt-to-equity ratio of the guideline
companies, 24.8 percent, to reflect the debt-equity ratio that
Schlegel UK would have as an independent entity.
In arriving at his final cost-of-equity capital, Button also
applied a small company risk premium and company-specific risk
premium. Button claimed that studies show that the CAPM does not
fully capture the risk associated with small companies.
Accordingly, he contends that it is appropriate to incorporate a
small company risk premium in the discount rate to reflect the
additional risk of small companies such as Schlegel UK. Button
adjusted his CAPM analysis to include a small company risk
premium of 5.7 percent. Button also maintained that a company-
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