An appraiser valued a subsidiary of signal co. at between $230 million and $260

Question

An appraiser valued a subsidiary of signal co. at between $230 million and $260 million. Six months later, Burmah Oil offered to buy the subsidiary at $480 million, giving Signal only three days to respond. The board of directors accepted the offer without obtaining an updated valuation of the subsidiary or determining if other companies would offer a higher price. Members of the board were sophisticated, with a great deal of experience in the oil industry. A Signal Co. shareholder sued to prevent the sale. Is the Signal board protected by the business judgment rule?

Explanation / Answer

Signal board not protected by the business judgment rule, because according to business judgment rule they violated the duty of care.

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