K11-7. Accounting Ethics Case Colin Agee, chairperson of the board of directors and chief executive officer of Image, Inc., is pondering a recommendation to make to the firm's board of directors in response to actions taken by Sam Mecon. Mecon recently informed Agee and other board mem. bers that he (Mecon) had purchased 15 percent of the voting stock of Image at $12 per share and is considering an attempt to take control of the company. His effort to take control would include offering $16 per share to stockholders to induce them to sell shares to him. Mecon also indicated that he would abandon his takeover plans if the company would buy back his stock at a price 50 percent over its current market price of $13 per share. Agee views the proposed takeover by Mecon as a hostile maneuver. Mecon has a reputation of identifying companies that are undervalued (that is, their underlying net assets are worth more than the price of the outstanding shares), buying enough shares to take control of the company, replacing top management, and, on occasion, breaking up the company that is, selling off the various divi- sions to the highest bidder). The process has proven profitable to Mecon and his financial backers. Stockholders of the companies taken over have also benefited because Mecon paid them attractive prices to buy their shares. Agee recognizes that Image is currently undervalued by the stock market but believes that eventually the company will significantly improve its financial performance to the long-run benefit of its stockholders. Required What are the ethical issues that Agee should consider in arriving at a recommendation to make to the board of directors regarding Mecon's offer to be "bought out of his takeover plans? Ishranand