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E. LTL's Purchase of GSX
1. The Agreement To Buy GSX
LTL bought the stock of GSX for $349,812,613 in 1986.12
DeGroote and Haworth asked three investment banks if they wanted
to provide long-term financing for LII to buy GSX. Dean Witter,
Bear Stearns, and Donaldson, Lufkin & Jenrette each gave LII
tentative proposals. Each investment bank said that the GSX
acquisition could be financed through a combination of equity (or
convertible debt), subordinated debt, and bank loans. The
investment banks based their proposals in part on information
about GSX's finances that LTL later found to be unreliable. Each
proposal would have required petitioners to publicly issue stock
or debt. However, petitioners could not issue equity or debt
because GSX did not have separate audited financial statements.
Haworth opposed a public offering at that time.
LTL and LII rejected the investment banks' proposals
because: (a) GSX did not have separate audited financial
statements; (b) equity or convertible debt would dilute LTI's
interests in LII; and (c) debt from commercial lenders could not
be secured on terms as favorable as debt from LIIBV.
Ferrill (identified at par. I-C-2-a, above) was a member of
a special committee for LII's board of directors which was
considering the investment banks' proposals. He relied on
Haworth's judgment in deciding that LII should reject the
12 GSX's parent had agreed to reduce the price by
C$24,743,000 because Coopers & Lybrand identified problems with
GSX's operations.
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