Friday, March 30, 2012

NCR v AT&T Corp. case brief

NCR v AT&T Corp.


AT&T failed entry into computer business, though wanted to buy company. NCR shareholders benefitted tremendously, but NCR managers hated the idea. Thus, deployed poison pill which staggered board elections. To get rid of Staggered Bd, needed 80 percent vote of all voting shares, not just shares that voted. Managers implemented an ESOP ö employees always vote in employee’s interest ö don’t want to be laid off. NCR needed business reason for ESOP.

(a) HELD: ESOP was purely to prevent takeover.
(b) DW says that decision of which way to finance (self or through bank) is irrelevant to issue of whether ESOP is a good idea.
(c) Stock price scenario. Goldman Sach said that stock 8 in short term, and then go into period of negative growth over long-term. DW stated that this was ridiculous.
(1) AT&T lawyers didn’t notice this. Should have hired own expert, make hay. Why refusal to offer a fairness opinion? Usually std practice.
(2) If you pay out faster than you earn, you are liquidating and the PV will drop. Thus, DIV must be > discount rate (r), which is only likely to happen in liquidated.
(3) Fluctuations in Stocks are based on new information being introduced. If we have all info, then curve must be smooth.

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