Takeovers

Takeovers

What rights does Bonetti have (in most states) as a minority shareholder dissenting to the merger of GVG and Hula Boards?

In many state legislations, the dissenting shareholders are entitled to receive cash payment for the fair value of their shares in case of share-for-share acquisitions. To which the shareholders dissent. The availability of the provisions on the dissenters’ rights makes it possible for them to move out of the company if they do not want to be part of the merger or acquisition.[1] Moreover, in many states, the dissenting shareholders have the right to examine the books of accounts and the minutes of the corporate meetings. They also have the right to inspect the records of the shareholders. Thus, Bonetti, being a dissenting minority shareholder, has the right to demand cash payment for the fair value of his share and opt to move out of the merger of GVG and Hula Boards. If he decides to stay, he has the right to check on the books of the accounts and the minutes or resolutions in the merger meetings.

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Could the parties have used a short-form merger procedure in this situation? Why or why not?

No, the parties to these mergers did not employ the short-form of the merger procedure. A short-form of merger happens when the parent company merges with a subsidiary of its own. In the short-form merger, the parent company is required to have high stakes in the subsidiary, and the stake is supposed to be above 80% of every class of stock issued by the subsidiary.[2] In the given case study, VGA is merging with Hula Boards; both companies are different in that none of them is a parent or a subsidiary. Bonetti and Sanchez formed VGA, while Jin Li founded hula boards. Hence, they were two different countries and could not merge by short-form approach.

What is the term used for Hula’s offer to purchase GVG stock?

The term that applies to the act of Hula’s offer to purchase GVG is a forward subsidiary merger. This is a type of merger deal where the acquirer creates a merger subsidiary first with the main target of merging in the future. A forward subsidiary merger occurs when the acquisitions are costly and long. Thus, the acquirer first makes the targeted company a subsidiary so that the procedures of complete merging can be easy.[3] Another reason an acquirer uses a forward merger subsidiary is to work with the targeted company to gauge its performance and financial outlook. This helps the acquirer to make credible and informed decisions about whether or not it will merge. The prior information is very useful to know whether it will benefit when they finally merge or not.

Suppose that after the merger, a person injured on the Baked Chameleon board sued Hula (the surviving corporation). Can Hula be held liable for the injury? Why or why not

If a person injured by the baked chameleon board before the merger sued Huala, the surviving corporation, it would be liable. Even if Hula could have changed and become a merger, it would still be held liable because it still uses the same name, and the owner is the same person who owned the previous company.[4] Forming a merger does not make it accountable for the wrongdoings it committed before the merger. Hula is still responsible for the mistakes it committed because the roots of the current company are still traced to the parent company.[5] When a merger occurs, all the liabilities of the merging company become the liabilities of the merger company.

Debate: Corporate law should be changed to prohibit management from using most of the legal methods currently used to fight takeover

I agree with this statement; many corporate managers use the available corporate laws to resist taking over despite their dismal performance. Corporate law should be free in that each company should be given a fair chance to acquire, merge, or take over other companies that they feel would add value.[6] However, many managers are often not willing to merge or offer companies for acquisition. When a manager resists and blocks a takeover, it increases unfairness to the investors.

Bibliography

Lattin, N. “Minority and Dissenting Shareholders’ Rights in Fundamental Changes. Law and Contemporary Problems.” Vol. 23, No. 2, The New Look in Corporation Law (Spring, 1958), pp. 307-324 (18 pages)

M&C. (2020). Type of Merger: Short-Form Merger. Available. https://mecpartners.it/en/short-form-merger

Miller, R. 2017. Business law today. 11th Ed. Cengage Learning

[1] Lattin, N. Minority and Dissenting Shareholders’ Rights in Fundamental Changes. Law and Contemporary Problems. Vol. 23, No. 2, The New Look in Corporation Law (Spring, 1958), pp. 307-324 (18 pages)

[2] M&C. (2020). Type of Merger: Short-Form Merger. Available.  https://mecpartners.it/en/short-form-merger

[3] M&C. (2020).

[4] Miller, R. 2017. Business law today. 11th Ed. Cengage Learning

[5]M&C. (2020).

[6] Miller, R. 2017

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Takeovers

Answer the 4 questions passed on the information given. Then discuss your position on the debate this topic. When you are responding to the “Debate this” prompt, I do not want you to simply state whether you agree with the statement or disagree with the statement. I want you to explain the WHY. I want you to have material to back up your position. I want to see the support. What is your source? Additionally, when you post your final comment, don’t simply say I agree.

Debate This: Takeovers

Takeovers

From Business Law II

Chapter 35, p.838

Mario Bonsetti and Rico Sanchez incorporated Gnarly Vulcan Gear, Inc. (GVG), to manufacture windsurfing equipment. Bonsetti owned 60 percent of the corporation’s stock, and Sanchez owned 40 percent. Both men served on the board of directors. Hula Boards, Inc., owned solely by Mai Jin Li, made a public offer to buy GVG stock. Hula offered 30 percent more than the market price per share for the stock, and Bonsetti and Sanchez each sold 20 percent of their stock to Hula. Jin Li became the third member of the GVG board of directors. An irreconcilable dispute soon arose between Bonsetti and Sanchez over design modifications of their popular Baked Chameleon board. Despite Bonsetti’s dissent, Sanchez and Jin Li voted to merge GVG with Hula Boards under the latter name, Gnarly Vulcan Gear was dissolved, and production of the Baked Chameleon ceased. Using the information presented in the chapter, answer the following questions.

1. What rights does Bonsetti have (in most states) as a minority shareholder dissenting to the merger of GVG and Hula Boards?
2. Could the parties have used a short-form merger procedure in this situation? Why or why not?
3. What is the term used for Hula’s offer to purchase GVG stock?
4. Suppose that after the merger, a person who was injured on the Baked Chameleon board sued Hula (the surviving corporation). Can Hula be held liable for the injury? Why or why not

Debate This:

• Corporate law should be changed to prohibit management from using most of the legal methods currently used to fight takeover