978-1285770178 Lecture Note BL ComLaw 1e IM-Ch06 Part 2

8 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

whole or in part.

is enough? To be effective, a poison pill cannot have a set expiration date. Even though plenty of information

amount of time is whatever is necessary for the board to make its case effectively—however much time is

needed for the shareholders to be provided with adequate information to avoid the possibility of an erroneous

decision. In the final analysis, as in this case, it is all about value. Once a sophisticated group of shareholders

10 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

whole or in part.

1. What is the difference between a merger and a consolidation? A merger involves the legal combination of

remaining company continues as the surviving corporation and possesses all the assets and liabilities of the

disappearing corporation. In a consolidation, by contrast, two or more corporations combine to form an entirely new

corporation. The original corporations cease to exist as the new corporation is formed. The new corporation also

assumes any assets and liabilities previously possessed by the original corporations.

corporation.

3. What is a short-form merger? A short-form, or parent-subsidiary, merger may be accomplished without the

approval of the shareholders of either company in situations in which the parent company owns at least 90 percent of

the outstanding shares of each class of stock of the subsidiary corporation. The plan of merger must be approved by

number of shares held on the date of the merger or consolidation. The dissenting shareholder must follow the

statutory requirements precisely so as to avoid forfeiting his appraisal rights.

5. What sorts of corporate actions require the approval of both the board of directors and the

shareholders? Although the board of directors is usually authorized to make decisions regarding ordinary business

target company’s stock prior to the offer being made and may be conditioned upon the receipt of a specified number

of outstanding shares by a specified date.

7. What is a self-tender? A self-tender is an offer by a target company to acquire stock from its own shareholders

and thereby retain corporate control.

corporation to its shareholders that can be turned in for cash if a takeover is successful.

CHAPTER 6: MERGERS AND TAKEOVERS 11

whole or in part.

10. What advantages is a company likely to realize from a merger? Advantages would include a reduction in

research, development, production, and marketing costs, and the elimination of duplicative personnel. What is a

possible disadvantage of a merger? Without merging, firms are often competitors. Combining their assets and

operations would end the competition, which could arguably undercut profitability

ACTIVITY AND RESEARCH ASSIGNMENTS

1. Ask each student to research the origin of a particular takeover defense term (crown jewel defense, greenmail,

Footnote 6: The shareholders of Mt. Princeton Trout Club, Inc. (MPTC), made up the board of directors.

Despite MPTC’s articles of incorporation, which prohibited a sale or lease of corporate assets without a vote of the

directors, MPTC officers entered into leases and contracts to sell corporate property without notice to the directors.

MPTC never filed federal income tax returns, and did not timely pay its local property taxes. Also, some corporate

shareholder who entrusts his money to a company is entitled to rely.” In this case, there had been a consistent

undercurrent of dealing corporate interests without notice to the shareholders and directors.

Robert Green was one of the original eight shareholders. After 1996, Green no longer owned any shares,

however, although he had acquired the proxies to vote five shares by buying and reselling the stock while retaining

misrepresented that he was a director, had acquired several irrevocable proxies, and . . . had the self-declared right to

control, directly or indirectly, every aspect of corporate finance and governance.”

How might a breach of the fiduciary duty of a corporate director or officer affect a judicial decision to

dissolve a corporation on the basis of oppression? In the Colt case, the court pointed out that “[t]he officers,

12 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

whole or in part.

majority defeats those expectations and there exists no effective means of salvaging the investment.”

REVIEWING—

 MERGERS AND TAKEOVERS 

In November 2012, Mario Bonsetti and Rico Sanchez incorporated Gnarly Vulcan Gear, Inc. (GVG), to

manufacture windsurfing equipment. Bonsetti owned 60 percent and Sanchez owned 40 percent of the

corporation’s stock, and both men served on the board of directors. In January 2014, Hula Boards, Inc.,

owned solely by Mai Jin Li, made a public offer to Bonsetti and Sanchez to buy GVG stock. Hula offered 30

percent more than the market price per share for the GVG 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. In April 2015, an

irreconcilable dispute 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.

Ask your students to answer the following questions, using the information presented in the chapter.

1. What rights does Bonsetti have (in most states) as a minority shareholder dissenting to the

merger of GVG and Hula Boards? Bonsetti has appraisal rights as a minority shareholder dissenting to the

merger. The shareholders of each corporation subject to a merger must approve the plan, by vote, at a

shareholders’ meeting. Most state statutes require the approval of two-thirds of the outstanding shares of

voting stock. If a shareholder disapproves of a merger but is outvoted by the other shareholders, the

dissenting shareholder is not forced to become an unwilling owner of a corporation that is different from the

one in which he or she originally invested. The shareholder may be entitled to the fair value of the number of

shares held on the date of the merger. This is the shareholder’s appraisal right.

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

short-form merger would not be possible in this case. The Revised Model Business Corporation Act provides

a procedure for the merger of a substantially owned subsidiary corporation into its parent. This short-form

merger, or parent-subsidiary merger, can be accomplished without the approval of the shareholders of either

corporation. But it can be used only when the parent owns at least 90 percent of the outstanding shares of the

stock of the subsidiary. Here, the corporations are not in a parent-subsidiary relationship and so a short-form

merger would not be possible..

3. What is the term used for Hula’s offer to purchase GVG stock? By what method did Hula acquire

control over GVG? Hula’s offer to purchase GVG stock is called a tender offer. An acquiring corporation can

deal directly with a target company’s shareholders in seeking to buy the shares they hold and gain control of

the target. The acquiring corporation does this by making a tender offer to all of the shareholders of the target

company.