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.
- What rights does Bonsetti have (in most states) as a minority shareholder dissenting to the merger of GVG and Hula Boards?
- Could the parties have used a short-form merger procedure in this situation? Why or why not?
- What is the term used for Hula’s offer to purchase GVG stock?
- 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
Corporate law should be changed to prohibit management from using most of the legal methods currently used to fight takeover.
Takeovers are done according to the law. Challenging them requires the use of legal methods. Corporate law should not be amended to prohibit the management from using legal methods to challenge the takeover. The only way that fairness can prevail among the shareholders is if the legal methods are used in resolving the disputes that emerge among them (Miller, 2021). Corporate law outlines the procedure that should be used in takeovers. Management is supposed to follow these procedures. If the management has followed the procedures in takeovers, the takeovers cannot be challenged. Using legal methods to challenge the takeover would have outcomes that are favorable to the management. If the use of legal methods by the management is prohibited, the decision made would be unfavorable to the management (Miller, 2021). When the legal methods are not used in challenging the takeover, the rights that the parties have, especially the shareholders are disregarded. Using legal methods, rights are accurately determined. Legally, the merger decisions require shareholder approval in the acquired corporation. The approval is not required in the acquiring corporation. Bonsetti is not entitled to the right to fight the takeover since he is a shareholder in the acquiring corporation. Prohibiting management from using legal methods to fight the takeover would make the takeover be seen as unacceptable. Shareholders’ approval would be required on both sides. This may lead to the delay of the takeover since there is disagreement in the acquiring corporation (Miller, 2021). What happened, in this case, was not a short-form merger. GVG did not own over 90% of the stocks in the subsidiary corporation. Once a takeover happens, the original corporation is dissolved. Subsequently, its corporate assets are distributed to the shareholders. This ensures justice to the shareholders. Certainly, fairness will only prevail when legal methods are used.
Miller, R. L. (2021). Business Law Today, Comprehensive. Cengage Learning.