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value measures are developed using the stock prices of similar
companies (guideline companies) that are publicly traded. The
value measures are then compared to the subject company’s
fundamental data to reach an estimate of value for the subject
company or its shares. Because value under the guideline method
is developed from the market data of similar companies, the
selection of appropriate comparable companies is of paramount
importance.
Mr. Fuller’s principal criterion for selecting guideline
companies was geography, rather than size, financial, or
operating characteristics. All seven of the guideline companies
selected operated primarily in Indiana, Illinois, and Ohio.
As in the DCF analysis, Mr. Fuller adjusted the values of
Peoples' equity and assets to adjust the book equity-to-assets
ratio to 9 percent and made an adjustment to earnings. Mr.
Fuller then calculated the median price-to-earnings23 multiple
(10.4), price-to-assets ratio (12.1 percent), and price-to-book
equity ratios of the guideline companies (110.3 percent). After
calculating a value from operations using the ratios, Mr. Fuller
added back the excess equity value, reduced by a 10-percent
minority discount, to find the total value of Peoples' equity.
Applying the ratios to the adjusted equity, assets, and earnings
23 The price-to-earnings multiple used by Mr. Fuller was
based on the most recent four quarters' earnings for each
corporation.
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