Ron King. chairperson of the board of directors and chief executive officer of Image. lnc.. is pondering a recommendation to make to the firm's board of directors in response to actions taken by Jack Hatcher. Hatcher recently informed King and other board members that he (Hatcher) had purchased 15% of the voting stock of Image at $12 per share and is considering an attempt to take control of the company. His effort to take control would include offering $16 per share to stockholders to induce them to sell shares to him. Hatcher also indicated that he would abandon his takeover plans if the company would buy back his stock at a price 50% over its current market price of $13 per share. King views the proposed takeover by Hatcher as a hostile maneuver. Hatcher has a reputation of identifying companies that are undervalued (that is. their underlying net assets are worth more than the price of the outstanding stock). buying enough stock to take control of such a company replacing top management. and. on occasion breaking up the company (that is selling off the various divisions to the highest bidder). The process has proven profitable to Hatcher and his financial backers. Stockholders of the companies taken over also benefited because Hatcher paid them attractive prices to buy their stock . King recognizes that Image is currently undervalued by the stock market but believes that eventually the company will significantly improve its financial performance to the long-run benefit of its stockholders.

REQUIRED

What are the ethical issues that King should consider in arriving at a recommendation to make to the board of directors regarding Hatcher's offer to be "bought out" of his takeover plans?