Question

Julius is a shareholder in a public corporation, which has recently acquired another company, and the consequences for the bidding firm have been catastrophic. Julius is suing the bidder’s board of directors for breach of duty as he believes that they failed in their duties to the shareholders. The board of directors, in their response to the suit, said: “A board member is from British Columbia, and he knew about a timber company that was for sale and we could get it cheap. We saw that the profits of lumber companies had increased over the past two years, so we bought it. We did not waste time and money looking at other possible candidates because we had found a good deal. We knew the deal was good because the CEO of the target was the cousin of the board member from B.C.” The bidding company, prior to the acquisition, was in the business of making sewing machines. The board of directors of the bidding firm has 12 members, 8 of whom are either current or former executives with the firm.
Discuss at least four serious problems with the board’s approach toward this acquisition.



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  • CreatedFebruary 25, 2015
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