Edgar Bronfman, Jr., dropped out of high school to go to Hollywood and write songs and produce movies. Eventually, he left Hollywood to work in the family business—the Bronfmans owned 36 percent of Seagram Co., a liquor and beverage conglomerate. Promoted to president of the company at the age of 32, Bronfman seized a second chance to live his dream. Seagram received 70 percent of its earnings from its 24 percent ownership of DuPont Co. Bronfman sold this stock at less than market value to purchase (at an inflated price) 80 percent of MCA, a movie and music company that had been a financial disaster for its prior owners. Some observers thought Bronfman had gone Hollywood, others that he had gone crazy. After the deal was announced, the price of Seagram shares fell 18 percent. Was there anything Seagram shareholders could do to prevent what to them was not a dream but a nightmare? Apart from legal issues, was Bronfman’s decision ethical? What ethical obligations does he owe Seagram’s shareholders?
1. Bronfman owes Selecta duty to seek expert financial counsel a duty of reasonable care a duty of extraordinary care a fiduciary duty Item 1 to the Seagram shareholders.
2. Was Bronfman required to get shareholder approval of the sale of DuPont stock?SelectNo, because the transaction was not a merger No, because this transaction does not rise to the level of a fundamental change Yes, because this transaction is a merger Yes, because this transaction involves substantially all of Seagram’s assets, making it a fundamental change Item 1.
3. Was Bronfman required to get shareholder approval of its purchase of MCA? SelectNo, because mergers do not require shareholder approval No, because Seagram was the acquiring company Yes, because the merger would have a major impact on Seagram’s business Yes, because all mergers require shareholder approval Item 1 .
4. If Jane owns a single share of Seagram stock, would she have been able to participate in any of the required votes on Bronfman’s transactions? SelectYes, if her stock carries voting rights Yes, if she files a proxy statement No, only majority shareholders may vote No, unless she appointed a proxy Item 1 .
5. The Seagram corporation itself and SelectSeagram shareholders members of the public who did not purchase Seagram stock in reliance on Bronfman’s actions DuPont shareholders MCA shareholders Item 1 have been harmed by Bronfman’s actions.
6. The shareholders may take the steps of Selectfiling a direct lawsuit filing a proxy statement calling a special meeting to fire Bronfman filing a derivative suit Item 1 and filing a derivative lawsuit now that Bronfman has completed the transactions.
7. If the shareholders would like to file a derivative suit on behalf of Seagram, must they make a demand to the company first? SelectYes, shareholders must always make a demand to the company prior to filing a derivative suit Yes, only the corporation itself may file a derivative suit, but it must first be requested by the shareholders No, shareholders have the option to make a demand, but are never required to for derivative suits No, if the shareholders can show that the directors violated the business judgment rule Item 1.