Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250



Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

In the spring of 1984, Disney Productions’ stock was selling for about $3.125 per share. (All prices have been adjusted for 4-for-1 splits in 1986 and 1992.) Then Saul Steinberg, a New York financier, began acquiring it; after he had 12%, he announced a tender offer for another 37% of the stock—which would bring his holdings up to 49%—at a price of $4.22 per share. Disney’s management then announced plans to buy Gibson Greeting Cards and Arvida Corporation, paying for them with stock. It also lined up bank credit and (according to Steinberg) was prepared to borrow up to $2 billion and use the funds to repurchase shares at a higher price than Steinberg was offering. All of these efforts were designed to keep Steinberg from taking control. In June, Disney’s management agreed to pay Steinberg $4.84 per share, which gave him a gain of about $60 million on a 2-month investment of about $26.5 million.

When Disney’s buyback of Steinberg’s shares was announced, the stock price fell almost instantly from $4.25 to $2.875. Many Disney stockholders were irate, and they sued to block the buyout Also, the Disney affair added fuel to the fire in a congressional committee that was holding hearings on proposed legislation that would (1) prohibit someone from acquiring more than 10% of a firm’s stock without making a tender offer for all the remaining shares, (2) prohibit poison pill tactics such as those Disney’s management had used to fight off Steinberg, (3) prohibit buybacks, such as the deal eventually offered to Steinberg, (greenmail) unless there was an approving vote by stockholders, and (4) prohibit (or substantially curtail) the use of golden parachutes (the one thing Disney’s management did not try).

Set forth the arguments for and against this type of legislation. What provisions, if any, should it contain? Also, look up Disney’s current stock price to see how its stockholders have fared. Note that Disney’s stock was split 3-for-1 in July 1998 and 1,014-for-1,000 in June 2007.

Summary Introduction

To discuss: The argument for and against on the type of legislation and its provisions.


The argument for and against on the type of legislation and its provisions are as follows:

The management of DP Company argues that the stock worth more than $4.22 per share. Even if the Person SS has taken control on the company’s stock, then the remaining stockholders will be ignored and exploited by him. However, the non-management stockholders would mostly prefer the stock price to drop tremendously from $4.22 to $2.875 and there are even upset when the management decided to give away $60 million of their value to the Person SS.

The non-management stockholders believed that the Person SS will not treat them worse as compared to the current management. Every outside stockholders personally viewed DP Company affair as a flagrant abuse by the company’s management desperate to keep control...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Identify and briefly compare the two leading stock exchanges in the United States today.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

In what ways is economics a science?

Principles of Microeconomics (MindTap Course List)

Explain why a manager has an incentive to build slack into the budget.

Managerial Accounting: The Cornerstone of Business Decision-Making

Describe business marketing


COLEMAN TECHNOLOGIES INC. COST OF CAPITAL Coleman Technologies is considering a major expansion program that ha...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Why should policymakers think about incentives?

Principles of Macroeconomics (MindTap Course List)

Name and define the six major elements of the accounting equation.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)