Reference no: EM132537222

Point 1: Paper Tigers is a software development company operating in Waterloo, Ontario. The company specialize in developing applications for the healthcare industry relating to controlling the distribution of drugs to patients. Several years ago, the company went public and has been trading on the Toronto Stock Exchange, but the stock has languished. Recently, senior management has been in discussions with a private equity firm about the possibility of taking the company private and investing heavily in new applications to enhance its market position.

Point 2: John Magnum is the chief technology officer of the company and has been in meetings with the private equity people and the executive committee where discussions of the proposed transaction are taking place. The private equity people are considering offering a price for all of the outstanding shares that is 40 percent higher than the current trading price.

Point 3: At his Monday morning technology update meeting with his development team, someone asks John how the discussions are going. John responds that the deal has moved from the possible stage to the probable stage and the price will likely be a minimum of a 40 percent premium. He encourages all of his developers to quietly acquire as many of the shares as they can before the announcement of the deal takes place..

Required:

Question 1: Comment on John's actions in telling his staff the details of the transaction. Should the developers take advantage of this knowledge and buy shares immediately?