Question
I need some assistance with the discussion question below: You have just joined a big 4 accounting firm as a new associate, and have eagerly
I need some assistance with the discussion question below:
You have just joined a big 4 accounting firm as a new associate, and have eagerly set to work for one of the firms notable partners, John Doe. A major audit client of the firm is ABC Company, a publicly traded company that accounts for a significant portion of the firms audit revenues. ABC wants to acquire the stock of XYZ Company, its competitor. In the proposed transaction, ABC would offer three shares of ABC stock for every two shares of XYZ stock. ABCs CEO and largest shareholder is Bob Smith, who just so happens to be a college fraternity brother and lifelong friend of Mr. Doe. Mr. Smith wants to retain control of the ABC board of directors following the acquisition of XYZ, so he proposes to limit the voting rights of shares that are acquired by XYZ shareholders in exchange for their XYZ shares. This would potentially create a second class of stock for ABC, which for a variety of reasons would be extremely bad for ABC and Mr. Smith. Mr. Smith personally stands to reap an enormous financial reward if the acquisition can be carried out your firm will see a nice fee as well. The board of directors of ABC (which does not include Mr. Smith) has requested an opinion letter as to whether a second class of stock would be created by this plan. You review the law and treasury regulations carefully, find a court case directly on point, and realize that it would. When you report this information to Mr. Doe, he tells you, without taking the first look at your research, that he doubts the applicability of the case you found, and instructs you to draft an opinion letter that approves of the transaction and declares that no second class of stock would be created. He goes on to say that if the board receives the letter drafted as such, they will unanimously approve Mr. Smiths plan. I know I can count on you, Mr. Doe says as he walks out of the office for an afternoon of golf with Mr. Smith at the country club. WHAT WOULD YOU DO?
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