Questions from textbook Mergers Acquistions and Other Restru

Questions from textbook Mergers, Acquistions and Other Restructuring Activities, 7th Edition ISBN-13: 9780123854872 Author(s): DePamphilis, Donald

3.10: In response to Microsoft\'s efforts to acquire the firm, the Yahoo! board adopted a \"change-in-control\" compensation plan. The plan stated that if Yahoo! employee\'s job is terminated by Yahoo! without cause(i.e., the employee is performing his or her duties appropriately) or if an employee is leaves voluntarily due to a change in position or responsibilities within two years after Microsoft acquires a controlling interest in Yahoo!, the employee will receive one year\'s salary. Yahoo! notes that the adoption of the severance plan is an effort to ensure that employees are treated fairly if Microsoft wins control. Microsoft views the tactic as an effort to discourage a takeover. With whom do you agree, and why?

3.11: Which of the following is an example of conflict of interest that an effective corporate governance system would mitigate or eliminate?

a. A majority of the board is independent of management

b. Directors identify with managers\' interests rather than those of the shareholders

c. Directors have board experience with companies regarded as having sound govenrance practices.

Solution

3.10 Yahoo is adopting this technique due to fear of Microsoft control.They very well know that their firm is at losses & best way Microsoft would make Yahoo profitable is by weaning out unprofitable businesses. That means changing some employess portfolio & sadly some would be terminated. By invoking this clause, Yahoo clearly made task of Microsoft acquiring their firm difficult as this would not only increase Microsoft\'s acquision cost, if they acquire, but also would make it difficut for Microsoft to put Yahoo in green from red.

3.11 b.Directors identify with managers\' interests rather than those of the shareholders. This is because for effective corporate governance director should think about firm\'s interest rather than of someone else\'s.