Anheuser-Busch Company was in the verge of fulfilling their diversification strategy. They were negotiating for the acquisition of Campbell Taggart, opting to pay $570 million for the said company. The acquisition was pretty much successful until the Securities and Exchange Committee started an investigation regarding the unusual activity of the Campbell Taggart Stock. There is a speculation that there was Insider Trading of the Campbell Taggart stock. Evidences lead that Mr. Paul Thayer, an executive of Anheuser-Busch, has leaked information to his friends about the acquisition of Campbell Taggart.
The legal counsel of Anheuser-Busch is now facing the decision of filing a suit against one of its former executives. II. EXECUTIVE SUMMARY Anheuser-Busch Company acquired Campbell Taggart Incorporated to fulfill their diversification strategy. The merger was accomplished flawlessly, until the SEC informed Anheuser-Busch that they were investigating unusual activity of the Campbell Taggart stocks because they were speculating that Insider Trading have taken place. Mr. Walter Suhre, Vice President and General Counsel of Anheuser-Busch Company was contemplating whether to file a suit against Mr.
Paul Thayer, a company executive who allegedly leaked material information to his friends about the acquisition, or to opt for out-of-the-court settlement. This study focuses on the financial impact of the alleged Insider Trading to the acquisition of Campbell Taggart. This study have come up with the suggestion that Anheuser-Busch should file a suit against Mr. Paul Thayer. III. COMPANY HISTORY Anheuser-Busch is the nation’s leading brewer of light, premium, and super-premium beers. Expensive European hops and beechwood-chip aging in leven breweries across the country distinguish Anheuser-Busch beers such as Budweiser, Michelob, and Busch from much of their competition. Although principally a brewer, Anheuser-Busch has diversified, via various subsidiaries, into food products, refrigerator cars, metal containers, corn syrup, starch, and baker’s and brewer’s yeast. The company has also established two entertainment parks. These non-beer enterprises account for only 10% of Anheuser-Busch profits, but they are indicative of the company’s success. In 1852 Eberhard Anheuser, a prosperous soap manufacturer in St.
Louis, bought a failing brewery from a Bavarian immigrant named Sneider. Although the brewery’s cool underground caverns near the Mississippi River were conducive to good brewing, and although he had the will to succeed, Anheuser lacked one crucial ingredient for success—experience. He therefore hired his son-in-law, Adolphus Busch, another recent German immigrant schooled in the art of brewing, to be his general manager. That which the two men separately brought to the enterprise—an aggressiveness in business and a knowledge of quality brewing—has informed Anheuser-Busch’s history ever since.
IV. POINT OF VIEW Mr. Walter Suhre Vice President and General Counsel of Anheuser-Busch Company V. TIME CONTEXT 1981 – 1984 VI. CASE CONTEXT In 1984, the SEC accused Paul Thayer and eight others of insider trading. Some of Thayer’s inside information came from his position on the board of Anheuser-Busch, where he had learned about Busch’s 1982 merger with Campbell Taggart before the merger was publicly announced. The case deals with Busch’s reaction after learning about the SEC suit. In considering possible actions by Busch, Mr.
Suhre, the vice president and the general counsel of the company, realized that Anheuser-Busch would have to file a suit within a shorter period and that he might need to present his recommendations on this matter to the senior management. But before he could make a proposal, he wanted to assure himself that the company could demonstrate in court that it had been damaged by the insider trading. He needed both to confirm the company’s stated intention to sue Mr. Thayer and to decide if the company should sue any parties other than Mr. Thayer. VII. STATEMENT OF THE PROBLEM
Should Anheuser-Busch file a suit against Mr. Paul Thayer for insider trading of Campbell Taggart Incorporated stocks? VIII. CASE QUESTIONS • Did insider trading cause the price run-up in Campbell Taggart? Provide specific evidence of your claim. • Is Thayer actually guilty of insider trading? Why or why not? • Did Anheuser-Busch pay too much for Campbell Taggart because of insider trading? • How would assess monetary damages in this case? Are there any other factors, other than monetary, you would consider in assessing damage? IX. AREAS OF CONSIDERATION
DEFINITION AND CONCEPT OF INSIDER TRADING The illegal kind of Insider Trading is the trading in a security (buying or selling a stock) based on material information that is not available to the general public. It is prohibited by the US Securities and Exchange Commission (SEC) because it is unfair and would destroy the securities markets by destroying investor confidence. A company insider is someone who has access to the important information about a company that affects its stock price or might influence investors’ decisions. This is called material information.
Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 give the SEC the authority to seek a court order requiring violators to give back their trading profits. The SEC can also ask the court to impose a penalty of up to three times the profit the violators realized from their insider trading. In addition to the financial penalties, there are criminal penalties. Many now feel those penalties are not strong enough and are working to increase them substantially. A bill in the US Senate, for instance, seeks to make defrauding shareholders a felony punishable by up to 10 years in prison.
TABLE 1 – STOCK PRICE DIFFERENCES DURING PURCHASES OF INSIDERS |DATE |STOCK PRICE BEFORE PURCHASE |STOCK PRICE AFTER PURCHASE |% INCREASE (DECREASE) |VOLUME | |6/30 |24. 875 |25. 750 |3. 52 |. 1 | |7/1 |25. 750 |27. 000 |4. 85 |10 | |7/7 |25. 875 |25. 50 |(0. 48) |1. 5 | |7/12 |25. 500 |26. 250 |2. 94 |1. 8 | |7/13 |26. 250 |26. 250 |0. 00 |6. 9 | |7/14 |26. 250 |27. 000 |2. 86 |8. 1 | |7/19 |26. 50 |26. 625 |(0. 47) |. 3 | |7/21 |26. 375 |26. 125 |(0. 95) |5. 0 | |7/22 |26. 125 |26. 750 |2. 39 |4. 8 | |7/23 |26. 750 |27. 000 |0. 93 |12. | |7/26 |27. 000 |27. 750 |2. 78 |17. 4 | |7/27 |27. 750 |28. 250 |1. 80 |31. 7 | |7/28 |28. 250 |29. 125 |3. 10 |20. 9 | |7/29 |29. 125 |28. 500 |(2. 5) |8. 7 | |7/30 |28. 500 |29. 000 |1. 75 |11. 3 | |8/2 |29. 000 |29. 625 |2. 16 |29. 4 | OBSERVATIONS: • Stock Price of Campbell Taggart rose by 19. 10% from $24. 875 (price before insiders’ purchases) to $29. 625 (price after insiders’ purchases). COMPUTATION 1 – ACTUAL ACQUISITION PRICE OF CAMPBELL TAGGART [pic] [pic] [pic]
COMPUTATION 2 – ACQUISITION PRICE OF CAMPBELL TAGGART WITHOUT INSIDER TRADING [pic] [pic] [pic] COMPUTATION 3 – DIFFERENCE BETWEEN ACTUAL ACQUISITION PRICE AND ACQUISITION PRICE WITHOUT INSIDER TRADING [pic] [pic] [pic] SUGGESTED ANSWERS TO CASE QUESTIONS • Did insider trading cause the price run-up in Campbell Taggart? Provide specific evidence of your claim. According to the table above and the observations, the share price of Campbell Taggart spiked up 19. 10% during the Insider Trading period. Any decreases in the share price is accompanied by a decrease in insider trading volume. Is Thayer actually guilty of insider trading? Why or why not? Paul Thayer was an executive of Anheuser-Busch Company. He was aware of material information about the company’s planned acquisition of Campbell Taggart. In this context, he is an insider. Paul Thayer told his friends about the information he was aware of and his friends started to purchase stocks of Campbell Taggart. Because of these purchases, Campbell Taggart’s stock prices rose, a reason for its acquisition price to go up. • Did Anheuser-Busch pay too much for Campbell Taggart because of insider trading?
In reference to the computations, Anheuser-Busch overpaid at least $80 million for the acquisition of Campbell Taggart. • How would assess monetary damages in this case? Are there any other factors, other than monetary, you would consider in assessing damage? Monetary damages for this case could be assessed under two categories, the financial damage it have incurred and the criminal penalties. The financial damages shall consist of the overpayment for the acquisition of Campbell Taggart, the illegal profits of the insiders and that illegal profits times three.
Therefore, we have the $80 million overpayment and the $1. 9 million illegal profits. Estimated financial damages are $87. 6 million. X. ALTERNATIVE COURSES OF ACTION The company, basically, has two choices. • To file a suit against Paul Thayer • To agree for an out-of-the-court settlement with Paul Thayer XI. EVALUATION OF ALTERNATIVE COURSES OF ACTION To file a suit against Paul Thayer or the other parties involved ADVANTAGES: • Financial settlement • Justice would be obtained through lawful means. • Case would serve as a warning to those who are planning to be involved with insider trading
DISADVANTAGES: • Might cost several millions of dollars without the guarantee of winning. • Press coverage of the suit may be embarrassing to both sides. To agree for an out-of-the-court settlement with Paul Thayer ADVANTAGES: • The high cost of legal expenses could be avoided. • Press coverage would not affect company’s ratings. DISADVANTAGES: • Appropriate financial settlement would not be obtained. • People guilty of Insider Trading would not be punished accordingly and the possibility of them engaging again in this kind of activity is high. XII. CONCLUSION AND RECOMMENDATION
On a purely earthly law and financial context, we suggest that the company file a suit against Paul Thayer. Mr. Thayer is obviously guilty of Insider Trading and the monetary effect of this is highly material. He and his colleagues should pay the civil and criminal liability attributed to this kind of illegal action. We recommend that Anheuser-Busch work hand-in-hand with the SEC and present constructive evidence about the unusual activity of the stock during the Insider Trading period and actual proof that the colleagues of Mr. Thayer have purchased Campbell Taggart stocks when the information was leaked to them.