1. Yahoo received an offer from Microsoft in 2008 to buy the company shares at 31 per share. This price was 62% higher than the prevailing price. Yet Yahoo management rejected the offer. Yahoo’s share traded well below the offer price for the next five years. How can the management get away with rejecting an offer that is clearly in the best interests of the shareholders?
2. In each of the following cases determine if the halting of the trade by the exchange in response to price movement of traded securities was advisable. Explain your reasons and use appropriate terminology.
a) In response to an attack on the subway system in New York, the stock prices plummeted by 10% within a few seconds. The exchange halted trading for 10 minutes.
b) The only drug made by a company EKKG was deemed unsafe by FDA. The stock price plummeted by 50% in a few seconds. The exchange halted trading for 10 minutes. When trading resumed, the price further plummeted by 40%, the exchange halted trading for the day.
c) Due to friction with western nations China and Russia pulled out of WTO (world trade organization) and announced that foreign companies were no longer welcome in their countries. They also reneged on all trade treaties. Stock markets in Japan, Hong Kong, and India closed down 20% that day. When the US markets opened, the S&P was down 11% within a few seconds. In response the exchange halted trading for an hour. When the market resumed the index plummeted 5% further. The exchange closed trading for the day.
d) In response to a twitter feed that appeared to originate from the White House that claimed that for national security reasons, the constitution has been temporarily suspended and the country was under Marshal law until further notice the markets plummeted. The exchange halted trading for 10 minutes. White house denied having sent such a tweet. When trading resumed, the markets recovered most of their losses and actually closed slightly up for the day.