Bel\'s Bakery (BB) is a family owned business. In 2010 it recorded a $3 million

Question

Bel's Bakery (BB) is a family owned business. In 2010 it recorded a $3 million operating loss. Apparently, 50% of the losses stemmed from a failed acquisition. With short term interest rates at 5%, the manager (John) convinced the owners to expand its operations. It used $15 million of its retained earnings to acquire another privately owned bakery, Joe's Bakery (JB). In the first year after the acquisition, revenues from Joe's was $5 million, but thereafter sales were halted when one of the owners of JB filed suit challenging the rights of the management of JB to sell the company. BB lost the case and paid damages of $1.5 million. John, the manager of BB was fired. In explaining to his wife, John said he was the scapegoat because the attorneys who handled the acquisition failed in their due diligence. He said, "I promised sales of $5 million a year for 3 years and my sales forecast was right on the money.”

Why was John fired?

If sales were $6 million annually, would John still have been fired?

Explanation / Answer

John was firest because BB lost the case to claim their rights in acquired company JB. John as a manager must ensure that all transfer related legal formalities have been compiled with, but in this case they were not, hence John is fired.

Irrespective of annual sales of $6 Million, just must be fired due to above reason

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