Measuring the true value of privately held firms

In arranging a private placement or initial public offering of a privately held company, the most common approach is the “comparable company approach” to pricing. There are six steps to this process: 1) identify public companies similar to yours – but make sure they are meaningful within the same environment; 2) compare the relative performance and outlook of the two firms – but adjust figures of the private firm to make it “as if it were public;” 3) analyze market pricing – include historic stock prices, unique expectations and unusual circumstances, such as a recent acquisition; 4) set a price; 5) select an appropriate discount; and 6) conduct a “sanity check,” including whether or not the overall market appears to be fairly valued.
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Bielinski, Daniel W.

Full text: [Corporate Cashflow] Oct 1990

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Executive Compensation: Discount and Premium Stock Options

Two novel approaches to rewarding individuals for company performance may come to the fore in the 1990s. Although philosophically opposites, when designed properly, discounted stock options and premium stock options both accomplish the same objective. Options appear to be an ideal way to tie both the shareholders’ and executives’ financial well-being together. However, closer scrutiny indicates that the executive with options is not in the same situation as the shareholder. Their interests do not converge until after the executive exercises the options. A new approach to discounted stock began to evolve as companies sought to compensate board directors with rights to receive discount stock in lieu of annual director fees. Premium stock options are an entirely new approach to compensating directors and key executives. A premium stock option plan permits an executive to purchase company stock at specified periods at a price above the current market value at the time the option is granted.
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Kuraitis, Vytenis P.

Full text: [Compensation & Benefits Management] Autumn 1990

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PLUS BUSINESS

MERC MEMBER TESTIFIES: A Chicago Mercantile Exchange member began testifying today against 14 of his former Japanese yen pit colleagues in a trial stemming from the FBI undercover operation at the exchange. Aric March, 34, of Highland Park, told jurors he began working on the trading floor as a runner at age 13. He bought a membership seat 10 years later for $152,000 in cash “from the money I made trading,” he said. March, who pleaded guilty to reduced commodity fraud charges last month, resumed testifying this afternoon. TOKYO STILL FALLING: Tokyo stock prices partially recovered after a precipitous fall today on expectations the government will take action to support the stock market, traders said. The closely watched Nikkei Stock Average of 225 issues finished the day at 20,221.86, down 761.64 points, or 3.63 percent, from its Friday finish. At one point the index fell below the key 20,000 level for the first time in 3 1/2 years. NEW MARKS: Germany’s central bank began issuing new 100- and 200-mark banknotes today that it says are virtually impossible to forge. The notes also have an imprint that makes them readable to blind people. The Bundesbank said the new notes will replace old money over a period of two years.
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Full text: [Chicago Sun - Times] Oct 1, 1990

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Investment Update

Investment information is offered on technical analyst Martin Zweig’s outlook on stock prices for 1990, recent mergers of mutual funds and sales fees on load funds.
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Schiffres, Manuel
Kosnett, Jeff

Full text: [Changing Times] Oct 1990

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Investing in a Perilous Market

All the elements necessary for lower stock prices fell into place in summer 1990, with the Persian Gulf crisis and higher inflation. Investment strategies for the bear market of 1990 are detailed.
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Schiffres, Manuel

Full text: [Changing Times] Oct 1990

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INVESTING IN A PERILOUS MARKET

Are you ready to survive the bear market of 1990? All the elements necessary for lower stock prices and an economic recession fell ominously into place latethis summer: the Persian Gulf turmoil and soaring oil prices; dwindling corporate…
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MANUEL SCHIFFRES

Full text: [Changing Times (1986-1991)] Oct 1990

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Shop Till You Drop: That’s Just What Acquisition-Happy First Union Has Done to Its Earnings and Stock Price.

Fastest, tallest, biggest. Pick one, or more. Such superlatives are all essential words in the vocabulary of First Union Corp. In the late 1980s, the Charlotte banking company was the fastest-growing financial institution in the Southeast. It is, today, the largest bank in a region that covers the Carolinas, Florida, Georgia and Tennessee. Chairman Edward Crutchfield’s official biography notes that when he became president in 1973 at age 32, he was “the youngest president of a major bank in the United States.” (excerpt)
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Donsky, Martin

Full text: [Business, North Carolina] Oct 1990

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The Slaughter Quarter: Except for Oils, July-September Was Murder on Stocks

Stocks suffered dramatically in the 3rd quarter of 1990. The Dow Jones Industrial Average fell 14.9% from its level at the end of June. The Standard & Poor’s 500 lost 14.5%, and the New York Stock Exchange (NYSE) composite was down 14.1%. Things were worse in the over-the-counter market, where the National Association of Securities Dealers Automated Quotes composite plunged 25.5%. The obvious catalyst for the steep sell-off was Iraq’s invasion of Kuwait. Metals and petroleum companies are among the few beneficiaries of the invasion. The 3 best performing Dow Jones industry groups in the quarter were oil drillers, major oil producers, and oilfield equipment companies. Gas utilities, precious-metals concerns, aluminum producers, and coal also posted gains. The situation was much the same on the American Stock Exchange. Stretching the NYSE names list to 30 winners shows not much besides oil and gas stocks; most of the exceptions are buyout targets, such as Eldon Industries, acquired by Rubbermaid.
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Savitz, Eric J.

Full text: [Barron's National Business and Financial Weekly] Oct 1, 1990

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The Slaughter Quarter

The dramatic decline in stock prices from mid-July to Sep 1990 is discussed and the performance of many individual stocks detailed.
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Savitz, Eric J

Full text: [Barron's National Business and Financial Weekly] Oct 1, 1990

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Stock Report: Riches Among the Ruins

The negative economic developments of 1990 have affected banks in the Southeast US. Deteriorating real estate markets, decelerating economic growth, and stringent regulatory examinations are reflected in significant deterioration of asset quality and coverage. Despite the drastic regional changes, the quality rankings of southeastern banks do not differ markedly from those based on similar criteria as of year-end 1989. There is a definite positive correlation between recent stock price performance and asset quality level. A single exception is First Virginia, whose stock has been adversely affected by uncertainties in Washington, DC’s real estate markets, despite the company’s appearance at the pinnacle of current quality rankings. First Union’s quality ranking has fallen considerably since year-end 1989 almost entirely because of the subsequent purchase acquisition of Florida National.
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Stillinger, Richard I.

Full text: [Bankers Monthly] Oct 1990

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A Modification and Re-Examination of the Bachelier Option Pricing Model

Bachelier developed the general foundation for option pricing in 1900. His model assumed that stock prices are normally distributed and follow an arithmetic Brownian motion process. This is inconsistent with the limited liability of stocks, and subsequent researchers have adapted the model to assume that stock price changes are normally distributed and that stock prices are lognormally distributed. The results of an analysis using an adapted version of Bachelier’s original discounted cash-flow (DCF) model based on Brownian motion are compared with the results obtained using the more traditional lognormal model. The results indicate that the adapted Bachelier DCF model values options approximately as well as the lognormal model. In addition to being an adequate model for stock options, the model developed in the analysis is useful in valuing calls on assets other than stocks, such as bonds.
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Murphy, J. Austin

Full text: [American Economist] Fall 1990

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Stock Prices, Bonds Surge as Oil Falls

The Dow Jones Industrial Average surged 63.36 points on Oct 1, 1990 to close at 2515.84.
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Winans, Christopher

Full text: [Wall Street Journal] Oct 2, 1990

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Stock Prices, Bonds Surge As Oil Falls — Easing of Tensions In Mideast Is Cited; DJIA Soars 63.36

Stock and bond prices surged as oil prices plunged amid a wave of optimism that a Mideast conflagration might be avoided. The Dow Jones Industrial Average soared 63.36 points to 2515.84 in hectic trading. Long-term U.S. Treasury bond prices climbed one point, or $10 for each $1,000 of face amount, in sluggish trading. The dollar fell against most major currencies, on expectation of lower U.S. interest rates and on yen buying sparked by lower oil prices. News that a U.S. budget accord had been reached Sunday provided a little oomph for bonds and stocks, but the early gains had largely ebbed by the time President Bush spoke to the United Nations. He suggested a scenario for a peaceful settlement in the Mideast: An Iraqi withdrawal from Kuwait would create an opportunity to settle the Arab-Israeli conflict. This suggestion seemed to accommodate certain Iraqi demands for negotiations.
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By Christopher Winans

Full text: [Wall Street Journal] Oct 2, 1990

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Stocks Jump As Tensions in Gulf Ease

The catalyst to soaring stock prices is the easing Middle East crisis. As a result, oil and gold prices fell while bond prices rallied, sending yields lower.
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Kadlec, Daniel

Full text: [USA TODAY] Oct 2, 1990

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Xerox Product Combines Computer, Copier, Fax;Device Seen as Step Toward Paperless Office

Xerox apparently views the new device as a way for companies to control the proliferation of paper and computer documents. The machine could be another step in the long-promised “paperless” office since it would allow documents to be stored in computers instead of in file cabinets. Such electronic “imaging” systems are offered by other companies but have not yet found a mass market. [Ann Palermo] said the new machine, believed to be called the Docutech Publisher, could replace print shops at major companies. She said high-speed printing devices used for high-quality, multiple-copy reproduction cost about $150,000, so the anticipated price of the Xerox machine is not out of line. [Peter Enderlin] said investors apparently aren’t excited about the announcement. Xerox’s stock price has fallen in recent weeks, as has the market in general, since news of the machine began to appear. Xerox stock closed up $2 at $36.25 yesterday in New York Stock Exchange trading.
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Bart Ziegler

Full text: [The Washington Post (pre-1997 Fulltext)] Oct 2, 1990

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Oil price drop spurs Wall Street, TSE

Analysts said today’s advance was a continuation of Monday’s rally, when the Dow Jones average soared more than 63 points and the TSE index 16.30 points. Stock prices also surged in Tokyo early today, with the Nikkei Stock Average of 225 selected issues climbing 2,676.55 points, or 13.24 per cent, to 22,898.41. The gain, the index’s largest one-day advance, helped set a positive tone on Wall Street, analysts said.
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Full text: [The Vancouver Sun] Oct 2, 1990

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REPORT ON BUSINESS INDEX, TUESDAY, OCTOBER 2, 1990 SUMMARY Stock prices rise

Canadian barley farmers will find East Germany an impossible market to crack as reunification brings prohibitive import levies on the grain. page B7
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Full text: [The Globe and Mail] Oct 2, 1990

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Dow jumps 63.36 as Congress acts to subdue deficit

President Bush called on the Federal Reserve Board to push interest rates down in recognition of the budget accord, but Fed officials signaled that they were unlikely to do so in the foreseeable future. Portraying the budget accord as part of a pact between the administration and the Fed, Bush in effect demanded that the Fed hold up its share of the bargain, telling reporters in New York, “I would look to the Federal Reserve to lower the rates.” Despite the big increase in stock prices, economists were divided on how Wall Street responded to the budget accord. “While not great, and disappointing because it did not have a capital gains tax reduction, it still is positive in the sense that at the last moment Congress was able to function and produce an agreement. Nonetheless, the financial markets appeared to interpret it favorably,” said David Bostian, chief economist for Jesup, Josephthal & Co.
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Full text: [Star Tribune] Oct 2, 1990

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Northwest Stocks Take a Dunking in Third Quarter

How bad was third-quarter stock activity? It was so bad that among the 109 Pacific Northwest issues tracked by The Times, only five showed gains. It was so bad that 93 stocks –85 percent — recorded double-digit percentage losses for the three months starting July 2. It was so bad that the stocks which, as a group, showed a 5 percent gain through 1990′s first six months now show an average loss of 21 percent for the year. It was so bad that Northwest stocks lost 10 percent more in the quarter than the widely watched, big-stock Dow Jones industrial average. Northwest stocks fell 24.5 percent. The Dow dropped 14.9 percent. The NASDAQ composite index, a smaller-stock group more akin to the Northwest stocks, fell 25.5 percent. (excerpt)
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Heberlein, Greg

Full text: [Seattle Times] Oct 02, 1990

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Bad Quarter for Bay Stocks

Only 10 of the 172 Bay Area issues managed to post a gain during the quarter, and 22 companies dropped off the list altogether because they fell below the minimum criteria. To be included, a company must have at least $3 million in market value and a stock price of at least $3 per share at both the beginning and end of the quarter. The top two stocks – Velobind and Ingres – both received takeover offers. Velobind, which makes systems for binding papers, received an offer from its biggest competitor, General Binding Corp. Ingres, maker of database software, was courted by Ask Computer Sytems, which makes manufacturing control software. Similarly, database software leader Oracle Corp. – long one of Silicon Valley’s highest flyers – continued a decline that began early this year. The latest reverses included the disclosure on September 7 of Oracle’s first-ever quarterly loss and the layoff of 400 workers. Oracle stock, which fell 17 percent on September 7, went from above 23 to 6 1/2 during the quarter. Oracle’s problems also hurt rival Informix Corp., which analysts predicted would experience the same slowdown as Oracle.
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Kathleen Pender, Don Clark, Chronicle Staff Writers

Full text: [San Francisco Chronicle (pre-1997 Fulltext)] Oct 2, 1990

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