Anheuser Busch Case Analysis

Xuedan Lu

Bus 279

HW 1

4/18/2017

Anheuser Busch Case Analysis

Case Overview

        Anheuser-Busch, a St.Louis-based brewery company, had experienced an insider trading before its acquisition of Campbell Taggart – the second largest bakery manufacturer nationwide for $570M in cash and stock in 1982. The VP and general counsel of Anheuser-Busch, Walter Suhre, believed that the previous director of Anheuser-Busch, Paul Thayer, had leaked material confidential information before the merger announcement date. According to a 1984 SEC complaint, Thayer tipped eight of his friends. Though Thayer did not trade on this information himself, the 8 tippees made more than $1.9M illegal profit on the information that Thayer provided. This complaint was delayed in court due to the standstill agreement that was reached by both parties. This agreement benefit both parties that Anheuser-Busch had more time to gain evidence to sue Thayer, while Thayer would be able to defend himself in a more manageable setting and this agreement can be terminated by both parties. While winning more time for the lawsuit, Suhre still needs to make the decision of either file a lawsuit or not. It is a tough decision that suing Thayer might cost millions of dollars of legal expenditure with no guarantee of winning and the potential negative effects caused by suing a former board director. Likewise, suing the tippees could possibly increase the size of merger settlement. Whereas, dropping the lawsuit could possibly indicate forgiveness and shareholders might file a “derivative action” considering the company loss that caused by this case.

Analysis

        Series of actions of Thayer during 6/25/82 – 7/28/82 indicated that he tipped multiple persons about the Campbell-Taggart acquisition before the official merger talks announcement on 8/3/82 and agreement announcement on 8/9/82. Thayer had spent the weekend with Harris and other two companions in Houston on the weekend of 6/25/82. He also made a phone call to Harris immediately after talked to Anheuser-Busch’s board chair on 7/6/82. He was also noticed to call his companion right after attending the Anheuser-Busch board meeting on 7/28/82. The noticeable unusual trading started as early as 6/30/82 and had continued through the whole period before the merger announcement. The date of usual trading showed an exact match with Thayer’s alleged tipping actions.

        The tippees should pay a civil penalty that is three times of the $1.9M profit that they made illegally, which is $5.7M in total. In addition to the civil penalty, Thayer and the tippees should also pay an individual fine of maximum $5M, respectively. The defendants also might face a maximum 2o years of jail time. It is worth noting that 10b5-1 trading plan might help the tippees defense against the claims. However, only the trading history of Thayer’s Companion seems that it might qualify for it. But giving that this person is unlikely to be a contracted broker with Anheuser-Busch, this tipee would face the same penalty like the rest.

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