Business Ethics, 8e Jennings
As part of the deal, Dillard’s installed data lines and computers in Horne’s fourteen stores to
prepare for the consolidation. With the stores hooked into its Little Rock, Arkansas, headquarters,
Dillard’s assumed control of Horne’s merchandise purchasing.
Dillard’s executives wanted financial and purchasing control because the contract price was
contingent upon a finding that Horne’s financial statements were accurate. Horne’s CEO, Robert
A. O’Connell, voiced his concerns to E. Ray Kemp, Dillard’s vice chairman, about the extent and
speed of Dillard’s assumption of control. Kemp told O’Connell, “Trust me, it would take an act of
God for this deal not to go through.”
Dillard’s had been acquiring department stores like Horne’s all over the country, adding 196
stores in five years. From 1987-1991 Dillard’s earnings had gained 20 percent through its
strategy of taking over financially troubled firms.
In 1990, however, Dillard’s deal with Horne’s fell through, and Horne sued Dillard’s and DeBartolo
for breach of contract and fraud. Horne’s suit alleged that Dillard’s plan in taking over the buying
and data was to decrease the value of Horne’s to get a bargain price.
Experts in the industry indicate that Horne demonstrated inexperience by allowing Dillard’s rapid
infiltration. The contract provided that Horne could veto any proposal for Dillard activity in Horne’s
Between the time the contract was negotiated and Dillard’s cancellation of the agreement,
Dillard’s executives found that some Horne accounting practices were questionable. But some
industry experts and Horne executives said Dillard’s often “nickels and dimes” sellers to bring
down the price.
Horne’s suit also alleged that Dillard’s told 500 employees that their jobs would be gone after the
takeover. Thirty percent of those employees quit before Dillard’s and DeBartolo withdrew.
Because Dillard’s took over merchandise buying, Horne maintained, merchandise deliveries were
late and the wrong merchandise was ordered for critical periods, such as the holiday season.
A Pittsburgh National Bank officer testified in his deposition in the suit that a Dillard’s executive
told him in 1988 that Dillard’s might wait until Horne’s bankruptcy to buy the company. Dillard’s
denies the statement and the plan. Dillard’s and Horne’s settled the suit in 1992.
a. Were the damages Horne’s experienced just a consequence of a failed business deal?
b. Did Dillard’s take advantage of a debt-ridden company?
c. What financial-disclosure obligations do takeover targets have?
d. Did Dillard’s have any special obligations because of its access to Horne’s data and
e. Is it unethical to take advantage of a naive party in a commercial transaction?