In March 1984, a group headed by Saul Steinberg purchased more than 2 million shares of stock of Wait Disney Productions, the owner of Disneyland. Disney responded by announcing that it would acquire the Arvida Corporation for $200 million in newly issued Disney stock and would assume Arvida's $190 million debt. The Steinberg group countered with a shareholder derivative suit in federal court, seeking to block the Arvida transaction. All of the proceeds of such a suit (less expenses) go the corporation for the benefit of all of its shareholders. While the shareholder derivative suit was pending, the Steinberg group proceeded to acquire 2 million additional shares of Disney stock, increasing its ownership position to approximately 12% of the outstanding Disney shares. On June 8, 1984, the Steinberg group advised Disney's directors of its intention to make a tender offer for 49% of the outstanding shares at $67.50 a share and its intention to later tender for the balance at $72.50 a share.

Question Asked:

Should the Disney directors offer to repurchase all the Disney stock held by the Steinberg group at a premium and to reimburse the estimated cost incurred in preparing the tender offer in return for the Steinberg group's agreement not to purchase any more Disney stock and to drop the Arvida litigation? Is it legal or ethical for the Steinberg group to agree not to oppose a motion to dismiss the Arvida litigation? To sell its shares at a premium not offered to other Disney shareholders?