Edit question Utah Light, Inc. has a takeover offer from Cal Corp. Utah Light is experiencing difficulty with earnings and its share price has dropped from $32 to $19. Cal Corp's offer is for $23 per share. Utah Light's board meets once and reaches a general consensus after thirty minutes that because of pending plans and developing assets, it should not accept the offer as the actual value of the company is at least $30 a share - in their estimation.
1. Must the board accept the offer?
2. If they reject it, have they exposed themselves to any liability to the shareholders? Why, or why not?

1. They do not have to accept the offer 2. No, if there is clear opportunity to continue with the business, the board is not exposing shareholders to any loss.

Explanation:

The stock value of a company is a valuation given by the market with the available information. It is believed that company's management team has more accurate information about the company and if their own calculation says that the company valuation is about $23 (in this case $30) the shareholders should believe in the management team criteria. Could be thought that Utah Light's board destroyed the premium of $4 per share that Cal Corp was intended to pay. Instead, what the board did was to avoid the destruction of $7 per share. The stock valuation could change in time (it is not definitely), but if they accept the takeover offer, the destruction of value will be definitive.