Corporation A was involved in merger discussions with Corporation B. During this
ID: 325438 • Letter: C
Question
Corporation A was involved in merger discussions with Corporation B. During this time, Corporation A made public statements denying that any merger negotiations were taking place or that it knew of any corporate developments that would account for heavy trading activity in its stock. A class of former shareholders who sold Corporation A stock after the public denial of merger activity and the announcement of the merger some six weeks later sued Corporation A, contending it made material misrepresentations of fact in denying the merger activity Corporation A stock increased 25% upon the merger announcement. Corporation A stated that at the time of its denial of merger activity it was just involved in preliminary negotiations and its actions were not material until negotiations reached an agreement in principle. Moreover, it asserted that the shareholders made no showing that they relied on the denial statement. Decide.Explanation / Answer
After going through the given scienerio and also determining the clauses related to this action in the books of law, I have identified that this action of corporation A comes under material misstatement. As they denied in their public statement about any merger negotiations were taking place. They also mentioned that no such corporate developments were taking place that would lead to heavy trading activity in its stock. Although at this time when this press release was made corporation A was in preliminary negotiation stage with corporation B. Based on this statement shareholders acted by selling their stocks, This is clear act of misleading. Therefore, I find this act of corporation A as material misstatement, misleading and misrepresentation.