Please read the story and the debate statement. Then read my peer’s answer to the debate. You should write 300 about her answer on the topic. Please provide an analysis based on the USA law.
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.
Debate This: Corporate law should be changed to prohibit management from using most of the legal methods currently used to fight takeover
In my opinion, corporate law should take measures to ensure there is the abolition of legal efforts to fight against takeovers.
A hostile takeover is when one company, i.e., the target company, acquires another company by going directly through the shareholders or replacing the management of the acquisition approved. Much has been written on hostile takeovers in that some organizations support it, and some are against the move. Various legal methods have been created to ensure an effective fight against seizures in an organization. However, I am entirely against such initiatives, and thus corporate law should indeed prohibit management from using the legal methods to fight takeovers.
For example, share buyback is one of the initiates applied towards the fight against takeovers. However, it leads to an increased level of ratios like EPS, ROE, and ROA. A significant level of ratios is not healthy in an organization as it will lead to a drastic decrease in outstanding shares, which is not organic growth for profit. Another legal method is using the poison pill, allowing shareholders a right to purchase shares at a discounted price. However, this is a significant disadvantage as it leads to dilution of the stock. With too much purchase of such shares, there is an increased level of stocks, leading to the general market saturation in an organization. Another common strategy is through leveraged recapitalization, which involves changing an organization’s capital structure. In most cases, this leads to a change in capital structure, leading to heavier debts and increased financial risks. Thus, corporate law should undoubtedly prohibit management from using such methods for their good.