Several years ago, senior executives at energy company CanOil wanted to acquire an exploration company (HBOG) that was owned by another energy company, AmOil. Rather than face a hostile takeover and unfavorable tax implications, CanOil’s two top executives met with the CEO of AmOil to discuss a friendly exchange of stock to carry out the transaction. AmOil’s chief executive was previously unaware of CanOil’s plans, and as the meeting began, the AmOil executive warned that he was there merely to listen. The CanOil executives were confident that AmOil wanted to sell HBOG because energy legislation at the time made HBOG a poor investment for AmOil. AmOil’s CEO remained silent for most of the meeting, which CanOil executives interpreted as an implied agreement to proceed to buy AmOil stock on the market. But when CanOil launched the stock purchase a month later, AmOil’s CEO was both surprised and outraged. He thought he had given the CanOil executives the cold shoulder, remaining silent to show his disinterest in the deal. The misunderstanding nearly bankrupted CanOil because AmOil reacted by protecting its stock. What perceptual problem(s) likely occurred that led to this misunderstanding?

This incident describes true events in Dome Petroleum’s acquisition of Conoco, Inc. subsidiary Hudson Bay Oil and Gas (HBOG). (See: J. Lyon, The Rise and Fall of the House that Jack Built (Toronto: McMillan, 1983)). HBOG’s high acquisition price (due to Conoco’s resistance strategy) along with other debts, increasing interest rates, and falling oil prices put Dome on the brink of bankruptcy. The company was later acquired by Amoco. 

This incident is a classic example of false-consensus effect. The CanOil executives interpreted the AmOil CEO’s silence as tacit agreement with the plan, likely because they wanted to believe AmOil would support the stock swap strategy. Not only was this plan critical to the CanOil’s executives’ personal goals; it was also a high risk strategy that relied on questionable accounting procedures. These conditions likely further added to the CanOil executives’ perceptual bias that the AmOil CEO was on side.

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