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Problems With the Guideline Company Approaches
Although Ms. Walker’s guideline company approach was
thorough and clear, deserves careful consideration, and is
entitled to some weight, we believe it systematically understated
Demco’s value. First, it did not adequately take account of the
value of the $1,080,000 media note. Second, it used erroneous
measures of Demco’s projected income for 1992. Third, it did not
use all the guideline company multiples but instead picked and
chose among the lowest.
Treatment of Media Note
As noted above, Ms. Walker adjusted Demco’s historical
performance and forecasted earnings measures to eliminate income
attributable to the media division; that division was sold on
June 1, 1991, in exchange for cash and the media note. However,
Ms. Walker did not then readjust Demco’s measures to include pro
forma interest amounts on the media note, or any other amounts
reflecting the media division’s income from 1987 until the date
of sale. As a result, the only income attributable to the media
note reflected in the measures calculated by Ms. Walker was the 6
months’ worth of interest that accrued on the note from the sale
date to the end of 1991 and the interest projected to be received
in 1992.
Demco’s performance measures, as calculated by Ms. Walker,
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