****ONLY ACCEPT IF YOU KNOW BUSINESS LAW***
Preparation: Read and outline the facts and law involved in the following fact pattern:
XYZ, Inc. is a publicly held corporation duly registered under Section 12 of the Securities and Exchange Act of 1934. XYZ, Inc. is successful and has accumulated large cash reserves.
Sam sent a letter of intent to XYZ’s board of directors disclosing his desire to acquire all of the outstanding shares of XYZ for the current market price of $20 per share plus a 10% premium of $2 per share.
Sam declined several invitations from the XYZ board to meet and discuss his tender offer. Cobb, the chairman of the XYZ board stated at a board meeting that he had no idea whether a 10% premium was appropriate but he added, “sounds good to me.” The board voted to recommend the tender offer to the XYZ shareholders conditioned upon receipt of a fairness and valuation report from XYZ’s investment bankers.
Cobb learned that Sam had changed his name to hide the fact that he had been imprisoned for securities fraud involving raiding companies he had acquired for their assets and leaving insolvent shells in the wake of his takeovers.
Cobb reported what he had learned to the XYZ board at which point the board voted 1) to acquire as much of its outstanding shares on the National Stock Exchange as possible, and 2) to grant the ten members of the board a $1 million severance package in the event Sam succeeded in taking over XYZ.
Sam increased his offer to $24 per share, a 20% premium. In response, the XYZ board redeemed all shares of XYZ Class A Redeemable stock for $12 million. Coupled with the greenmail defensive purchases on the Exchange, the redemption completely depleted XYZ’s cash reserves and the company began struggling financially.
The fairness and evaluation report stated that a fair premium for a tender offer of XYZ’s stock would have been 5% or $1 per share.
Sam withdrew his tender offer. The shares of XYZ, Inc. fell to $10 on the stock exchange.
Assignment: Answer the following –
Cleo, with a substantial investment in XYZ, Inc. stock in her portfolio consults you about her rights against the XYZ board of directors. What advice would you give Cleo regarding the XYZ board’s fulfillment of its fiduciary duties including but not limited to its failures, if at all, to meet its Unocal and/or Revlon duties?
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