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Dr. Spiro considered the remaining two companies, Mondavi and
Canandaigua, comparable to Korbel.
Dr. Spiro valued Korbel’s stock under the guideline company
method (as of the valuation date), by reference to the 1994
fiscal yearend price to earnings (P/E) and price to operating
cashflow (P/OCF) ratios for Mondavi and Canandaigua. For
Mondavi, those ratios, when reduced to multiples (of earnings and
OCF, respectively), were 17.51 and 9.57 and, for Canandaigua,
they were 22.09 and 14.54. Dr. Spiro based Korbel’s
corresponding multiples on Mondavi alone, but he “adjusted” them
downward, to a P/E multiple of 13 and a P/OCF multiple of 8, “to
account for Korbel’s additional risk factors” (i.e., the
differences, discussed below, between Korbel and the guideline
companies in terms of size, product mix, consumption patterns,
etc.). Those derived multiples were applied, and a mean value
was determined, which mean, $86,945, was Dr. Spiro’s valuation
(before discounting) of each share of Korbel under his market
approach.
2. Comparability
Dr. Spiro treated Mondavi and Canandaigua as comparable
(guideline) companies despite acknowledging that, in many
significant respects, they differ markedly from Korbel.
Size: In 1994, in terms of both revenue and total assets,
Canandaigua was approximately 10 times as large as Korbel.
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