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case for a discount for general factors of 30 percent. To
recount, Mr. Egan used a 30-percent discount because he perceived
three differences between FNBW and the comparable companies:
FNBW’S qualitatively inferior features (the smallness of the bank
and of its geographic market), FNBW’s quantitatively superior
financial position, and FNBW’s quantitatively inferior income
growth potential. In our view, the first two of these factors
would essentially cancel each other. The qualitative factors
relied upon by Mr. Egan supposedly go to the risk involved in
investing in FNBW, but it is clear that the first group of
quantitative factors shows that FNBW was not a risky investment
at all. Mr. Egan’s report shows that, although small, FNBW was
well managed, and more conservatively managed, than the median
comparable company.20 Thus, we are left to consider the third
factor that Mr. Egan relied on, FNBW’s inferior income growth
potential. Even if it is true that FNBW’s income growth was not
promising, its income was very good; according to Mr. Egan’s
report, its return on assets (i.e., net income divided by total
assets) was much better than the median.21 In addition,
20 On this point, all the experts agreed. Mr. Hitt believed
that FNBW was “in the top of its peer group” with respect to
return on assets and a better performer than the two comparable
banks he relied on, causing him to adjust his P/E and P/Eqt
ratios accordingly. Similarly, Mr. Haywood, respondent’s expert,
argued persuasively that FNBW was not a risky bank.
21 According to Mr. Egan, return on assets “might be the
most scrutinized of all banking ratios”.
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