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Business Planning Keyed to Gevurtz
Zahn v. Transamerica Corporation
Citation:
162 F.2d 36 (1947)Facts
Axton-Fisher Tobacco Company had three classes of stock: preferred stock, Class A common stock, and Class B common stock. The Class A stock was entitled to cumulative dividends of $3.20 per share and, upon liquidation, was entitled to share with Class B stock in the distribution of remaining assets after preferred stock was paid, with Class A receiving twice as much per share as Class B. Importantly, Class A stock was redeemable at the option of the board of directors at $60 per share plus accrued dividends. By March 1943, Transamerica had acquired approximately 66% of Class A stock and 80% of Class B stock, effectively controlling Axton-Fisher’s board of directors. In 1942-1943, Axton-Fisher possessed leaf tobacco carried on its books at approximately $6.36 million, but which had appreciated in value to approximately $20 million due to wartime conditions. Knowing this substantial appreciation, Transamerica allegedly conceived a plan to appropriate this value by having Axton-Fisher’s board redeem the Class A stock at the redemption price of $60 plus accrued dividends (totaling $80.80), and then liquidate the company, allowing Transamerica as the primary Class B stockholder to capture most of the appreciated tobacco value.
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