Suppose on April 2, 2021, Torrance, Inc., had 28 million shares outstanding and the company’s stock price closed the day before at $49.25 per share on the New York Stock Exchange. Further suppose that on April 2, Torrance’s board of directors made two decisions:

1. The board approved management’s agreement with the Strauss family of Canada to buy, for $51 a share, the Strauss’s 2.6 million shares in Torrance. This was part of a greenmail agreement ending the Strauss family’s attempt to control Torrance.

2. The board authorized the company to repurchase 7.5 million shares (27 percent of the outstanding shares) of its stock. The board simultaneously established an employee stock ownership plan to be funded with 4.9 million shares of Torrance stock.

These two actions made Torrance invulnerable to unfriendly takeover attempts. In effect, the company was selling about 20 percent of its stock to the employee stock ownership plan.

Earlier, Torrance had put in place a provision that said 80 percent of the stockholders have to approve a takeover. Torrance’s stock price fell by $.25 over the next two days. Because this move can probably be explained by random error, there is no evidence that Torrance’s actions reduced shareholder value.