Circon case (A) question: Put yourself in Auhll's shoes moments after receiving the telephone call from U.S. Surgical CEO Leon Hirsch: how do you

532 Week 13 Objectives

FBE 532 - Class Objectives and Reading Assignments

J. K. Dietrich

Week 13 – April 16 and 18, 2013

Goals and Objectives

Describe the structure of corporate governance in the United States and define the duties and obligations of directors and officers of the firms and specify their responsibilities to shareholders
Describe why management and/or directors may not serve the best interest of shareholders
Describe ways in which management and/or the board can attempt to defend their positions in the event of active investors trying to take control or a friendly or hostile takeover attempt
Present the arguments for and against corporate takeovers from the point of view of economic efficiency
Discuss the Jensen-Meckling analysis of the impact of outside investors on the insider’s tradeoffs between maximizing the value of the firm and personal benefits

Suggested Review Reading for this Week’s Class

RWJ, Review carefully Chapter 1 on corporate governance, review Chapter 29 (“Mergers and Acquisitions,” also suggested for Roche case), and read the Stern-Stewart reading on “EVA and Strategy” posted on the course website

Important Vocabulary List from Class

FIDUCIARY DUTY, DUTY OF CARE, BUSINESS JUDGMENT RULE

NEGLIGENCE, GROSS NEGLIGENCE

DIRECTORS AND OFFICERS INSURANCE, PLAINTIFF’S BAR, CLASS-ACTION LAWSUITS

MARKET FOR CORPORATE CONTROL, ACQUIRER, TARGET, HOSTILE BID

POISON PILL, STAGGERED BOARD, STACKED BOARD, “RIGHT” INVESTMENT BANKER

JENSEN-MECKLING OUTSIDE EQUITY IVESTORS, AGENCY PROBLEM ANALYSIS

Case Questions for Next Week’s Class (April 23, 2013) Circon (A)

What motivated Circon Chairman and CEO Richard Auhll? Did he have financial incentives that strongly aligned his interests with those of the shareholders?
Put yourself in Auhll’s shoes moments after receiving the telephone call from U.S. Surgical CEO Leon Hirsch: how do you respond to the hostile bid? What factors would you consider? What factors should you consider (if different)?
Put yourself in the shoes of George Cloutier, moments after being asked by Richard Auhll to join the Circon board. Would you agree to be on the board? What role would you wish to play? Is you role consistent with your “duty of care” as a member of the board?
Did Circon’s poison pill represent a strong or weak barrier to a hostile takeover? Specifically, if a hostile bidder had “broken through” (or triggered) the poison pill, what precisely would have happened to Circon’s capital structure and the hostile bidder’s stake in the company? (To answer this question see especially Footnote 1 on pages 4 and 5 and Exhibit 2 of the case).
Put yourself in the shoes of Charles Elson immediately after getting elected to the Circon board. How do you assess your situation? What are your options? How do you achieve change within the board and/or within the company?
At the board meeting at the end of the case, what options were available to the board? What appears to have been the most attractive? How should the board have implemented this option?

Suggested Wall Street Journal (WSJ) or other Articles

On Thursday (April 11)¸ the Wall Street Journal discusses a J. C. Penney working capital problem and need for funds, extending our working capital discussion:

http://online.wsj.com/article/SB10001424127887324010704578417150798374798.html?mod=ITP_marketplace_0

This issue also contained two stories on pharmaceutical companies relevant to our Merck and Roche case discussions:

http://online.wsj.com/article/SB10001424127887324695104578414530096553710.html?mod=ITP_marketplace_0

http://online.wsj.com/article/SB10001424127887324240804578417111074635032.html?mod=ITP_marketplace_0