SCENARIO

In March $1985,$ Anthony Johnson was working on a proposal to purchase his employer's firm, the Case Company. The Case Company, with corporate headquarters in Dover, Delaware, was a leading manufacturer of commercial desk calendars. Mr$.$ Johnson, vice president of finance and administration, considered the company an excellent acquisition opportunity, provided the owner's asking price was acceptable and satisfactory financing for the transaction could be arranged.

Background

A few weeks earlier, John M Case, board chairman, president, and sole owner of the company, had informed his senior management group that he intended to retire from business and was about to initiate a campaign to sell the company. For several years, his physician had been urging him to avoid all stress and strain; now Mr$.$ Case had decided to sever his business connections and devote his time to travel and a developing interest in art history and collection.

On the basis of previous offers for the company, Mr$.$ Case had decided to ask for $$20$ million, with the minimum of $$16$ million immediately payable in cash. He thought acquisitive corporations should find this price attractive, and he believed it would be easy to dispose of the business.

Mr$.$ Case had assured the management group that its jobs and benefits would be well protected by the terms of any sale contract that he might negotiate. Despite his faith in Mr$.$ Case's good intentions, Mr$.$ Johnson had been quite apprehensive about the prospect of having his career placed in the hands of an unknown outsider. However, after some reflection, Mr$.$ Johnson had concluded that the sale decision should be viewed as an opportunity to acquire control of a highly profitable enterprise. Purchase of the case company would not only ensure career continuity but also

provide a chance to turn a profit in the company's equity. Mr$.$ Johnsi. had realized that his personal financial resources were far too limited to allow him to bid alone for control of the company, Consequently, he had persuaded August Haffenrefer, vice president marketing; William Wright, vice president manufacturing; and Richard Benning, the controller, to join him in trying to buy the company, rather than standing by while control passed to an outsider. In response to Mr$.$ Johnson's request, Mr$,$ Case had agreed to defer all steps to merchandise the company until he had accepted or rejected a purchase proposal from the management group, provided this proposal was submitted within six weeks.

Because of his background in finance and his role in initiating the project, Mr$.$ Johnson had assumed primary responsibility for assessing the profit potential of the opportunity and for structuring a workable financial plan for the acquisition. Since Mr$.$ Case had not yet solicited bids from other potential purchasers, Mr$.$ Johnson believed that it would be most realistic to regard Mr$.$ Case's stated sale terms as fixed and nonnegotiable.