bus 250 chapter 34

Eve bought defective ball bearings from Saginaw Corp. Alfred was the sole shareholder of the company and also its landlord. After Alfred sold all of Saginaw's assets, he withheld enough money to cover the rent that Saginaw owed him. As a result, Saginaw had no money to pay Eve. Does Eve have a claim against Alfred?

Yes, because Alfred violated his duty of loyalty.

Walter, the president of a small corporation, offers to buy stock from a few stockholders, just enough that he (Walter) can gain a majority stake in the company. If Walter does not bring his offer to all stockholders, did he violate a duty of loyalty?

Yes, if he either engaged in self-dealing or did not treat the minority holders fairly.

The board of directors at Mega Oil rejected a takeover bid and made a counter offer that excluded a certain group of stockholders. Did the board's bid violate a fiduciary duty to the minority stockholders?

Yes, if the board's decision was made primarily out of self-interest

Much of the chocolate eaten all over the world is made of cocoa beans harvested by illegal child labor, including slave labor. According to the U.S. State Department, more than forty percent of the world's cocoa supply comes from the Ivory Coast, with approximately 109,000 child laborers working in hazardous conditions on cocoa farms. Children between 9 and 12 years old, many from Mali, have been tricked or sold into slavery for just $30 each. If managers at Nestle USA buy cocoa from these farms, have they violated a duty of care?

Yes, if the managers are uninformed about the slave labor practice.

Which of the following is NOT grounds for a board of directors to resist a hostile takeover?

The continued employment of employees of the acquired company.

Major Corporation wants to acquire control of Forte Company. What are some legal steps Forte can take to resist a hostile takeover?

. The target company can lock up the assets of the company by transferring them to another company or person and/or encumbering them with a variety of liens. b. Use a poison pill. c. Greenmail. d. Any of the above can be used by Forte

Alex is a director of ABC, Inc. Alex wants to acquire control over Bravo Co. How can Alex accomplish control

ABC to acquire control over Bravo can use any of the above.

One of the directors of Independent Pallet Mill purchases 100 acres of timberland. In order for him to sell the timber from this land to Independent, what must he do?

Get the approval of the disinterested members of the board of directors b. Get the approval of the disinterested shareholders. c. Nothing if the transaction is entirely fair to Independent. d. Any of the above is correct.

Xavier and other directors of Big-Corp want to acquire their chief competitor, Mid-Size, Inc. Which of the following is evidence that Big-Corp's efforts will be a hostile takeover?

Big-Corp makes a tender offer to Mid-Size stockholders.

Which of the following is not a legal shark repellent (tactics to ward off hostile takeovers)?

Blackmail

Xavier and other directors of Big-Corp want to acquire their chief competitor, Mid-Size, Inc. What can Mid-Size do to prevent a hostile takeover

Change the bylaws to require 75 percent of stockholders to agree to the takeover.

What should be the primary concern of corporate management?

Corporate shareholders.

Business Judgment Rule

If managers comply with the business judgment rule, a court will not hold them personally liable for any harm their decisions cause the company, nor will the court rescind the decision.

Duty of Loyalty

Managers may not enter into an agreement on behalf of their corporation that benefits them personally unless the disinterested directors or shareholders have first approved it. If the manager does not seek the necessary approval, the business judgment rule no longer applies, and the manager will be liable unless the transaction was entirely fair to the corporation.

Which is true regarding lawsuits and the business judgment rule

Managers will not be personably liable for their decisions if they followed the business judgment rule.

State Statutes

Many states have passed antitakeover statutes that render hostile takeovers more difficult for the bidder.

An appraiser valued a subsidiary of Signal Co. at between $230 million and $260 million. Six months later, Burmah Oil offered to buy the subsidiary at $480 million, giving Signal only three days to respond. The board of directors accepted the offer without obtaining an updated valuation of the subsidiary or determining if other companies would offer a higher price. Members of the board were sophisticated, with a great deal of experience in the oil industry. A Signal Co. shareholder sued to prevent the sale. Is the Signal board protected by the business judgment rule? (Discussion Question #4)

No, because they violated the duty of care.

Fiduciary Duty

Officers and directors have a fiduciary duty to act in the best interests of the shareholders of the corporation.

What is not a tenet of the "business judgment rule?"

Profit maximization.

Jenny is an officer of a corporation. She made a difficult business decision. When challenged about her decision, what will the court look to determine if the she had acted in good faith and that the business judgment rule applied?

She was informed with respect to the subject matter involved and to the extent appropriate under the circumstances. b. She was not financially interested in the subject of his business judgment. c. She reasonably believed her judgment was in the best interest of the company. d. The court will look to all of the above.

Some companies adopt a staggered board of directors as an antitakeover defense. How does a staggered board affect cumulative voting?

Staggered boards increase the number of votes required to elect a director

Williams Act

The Williams Act regulates the activities of a bidder in a tender offer for stock in a publicly traded corporation.

Two bidders want to buy Mackey Security. Mackey Security has contracts to provide security, bomb screeners, and anti-terrorist training at 10 major American airports and harbors in Los Angeles, New York, near Houston, Cleveland, and Boston. The Xiang Group offers the highest price, but it is generally understood that Xiang hires mercenaries including certain people who were formerly associated with MEK, an organization that the U.S. State Department defined as a terrorist organization. Can the board at Mackey reject the bid from Xiang and take the lower bid?

The board could not reject the offer, but the federal government could prevent it. no

What is / are the purpose(s) of the "business judgment rule?"

To allow directors to do their job without constantly being concerned about personal liability. b. To keep judges out of corporate decision-making. c. To encourage people to become corporate directors by limiting their potential liability. d. All of the above are purposes of the "business judgment rule."

Takeover Defenses

Under common law, shareholder welfare must be the board's primary concern when establishing takeover defenses. If it is clear that the company will ultimately be sold, the board must auction the company to the highest bidder; it cannot give preferential treatment to a lower bidder.

duty of care

Under the duty of care, managers must make legal, informed decisions that have a rational business purpose.

Corporate Opportunity

Under the duty of loyalty, managers may not take advantage of an opportunity that rightfully belongs to the corporation.

Many More sought to buy Wally's Computer Giant (WCG). The board at WCG rejected the offer, but the stockholders voted for approval of the buyout. Many More sued, complaining that the WCG board failed to give WCG stockholders maximum value for their stocks. Who wins?

WCG, if state law allows the board to consider WCG's constituents