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Chapter 41
Corporate Merger, Consolidation,
and Termination
See Separate Lecture Outline System
INTRODUCTION
Typically, a corporation extends its operations by combining with another corporation through a merger, a consolidation, a
purchase of assets, or a purchase of a controlling interest in the other corporation. This chapter examines these four corporate
events.
Dissolution and liquidation are the processes by which a corporation terminates its existence. The last part of this chapter
discusses reasons for, and methods used in, terminating a corporation.
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ADDITIONAL RESOURCES—
VIDEO SUPPLEMENTS
The following video supplements relate to topics discussed in this chapter—
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
Chapter 41.
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this chapter include the following.
• Legal Conflicts in Business
and there is an issue about what the acquiring company has said to the press. Misleading statements to the press could
affect the value of the acquisition, and may unfairly enrich some parties at the expense of others.
CHAPTER OUTLINE
I. Merger, Consolidation, and Share Exchange
Merger and consolidations are legal combinations of two or more corporations.
A. MERGER
A merger is the legal combination of two or more corporations. After a merger, only one of the corporations
continues to exist. The existing corporation acquires all the rights, powers, and privileges that both corporations
had, without a formal transfer. It also assumes liability for both firms’ debts and obligations.
ADDITIONAL BACKGROUND—
Mergers and Government Review
Since the administration of President Reagan, the Justice Department has taken an increasingly free-market view
of corporate mergers. Although the Clinton administration antitrust-law enforcers are tougher than their predecessors
were under Reagan and Bush, mergers that would have been carefully scrutinized before 1980 are regularly approved
today.
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In the 1960s and the 1970s, regulators believed that even slight concentrations of economic power in fewer hands
was to be avoided. Mergers were viewed as steps toward monopolies that would force prices up, workers out, and
wages down. Today, a market share of 20 percent, 30 percent, or even more appears to be required before a
government review is undertaken. One of the factors that altered the view is the growth of global competition.
Another important factor is economists’ theories concerning corporate efficiency and cost saving.
corporation (Walt Disney and Capital Cities/ABC), the largest department store corporation (R. H. Macy and Federated),
B. CONSOLIDATION
In a consolidation, two or more corporations combine to form an entirely new corporation. The results are
essentially the same as the results of merger.
C. SHARE EXCHANGE
In a share exchange, some or all of the stock of a company are exchanged for some or all of the stock of another.
A company that holds all of the shares of another is the other’s parent corporation of which the wholly owned
firm is a subsidiary corporation.
D. MERGER, CONSOLIDATION, AND SHARE EXCHANGE PROCEDURES
E. SHORT-FORM MERGERS
The Revised Model Business Corporation Act (RMBCA) provides for merging a substantially owned subsidiary
corporation into its parent, under certain circumstances without shareholder approval.
F. SHAREHOLDER APPROVAL
The board of directors and the shareholders must authorize actions taken on extraordinary matters (sale, lease,
or exchange of all or substantially all corporate assets; amendment to the articles of incorporation; merger;
consolidation; dissolution).
G. APPRAISAL RIGHTS
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1. Appraisal Rights Procedures
Procedural details are discussed in the text. Briefly, to exercise the right, a dissenting shareholder must file
2. Appraisal Rights and Shareholder Status
Once the right has been exercised, the shareholder’s other rights are affected.
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II. Purchase of Assets
When a corporation acquires all or most of the assets of another corporation by purchase, there is no change in the
legal entity so shareholder approval is not required. U.S. Department of Justice antitrust guidelines may constrain or
prohibit the purchase, however, if it is construed as a merger.
ENHANCING YOUR LECTURE—
WHO OWNS THE WEB SITE?
Most contracts to buy the assets of a corporation are performed with little difficulty. At times, however, a dispute
may arise over some matter connected with the transaction. In one case, for example, the dispute had to do with
ownership rights in a Web site. The case arose after 1–800-Postcards, Inc. (1-800), bought the assets of Popsmear, Inc.,
which owned and operated a Web-based postcard-advertising business. Popsmear’s address was
www.1800Postcards.com. According to the purchase agreement, Popsmear’s trademark rights were included in “all
of the assets” being sold by Popsmear to 1-800.
THE PROBLEM WITH THE WEB SITE
Problems arose, however, when the sole owner and shareholder of Popsmear, James Morel, changed the
password to the Web site. This meant that 1-800 was unable to make any administrative changes to the Web site or to
create and change its e-mail boxes. When 1-800 objected to Morel’s action, Morel contended that he personally, and
not Popsmear, was the registered owner of the domain name and, as such, had a right to change the password. 1–800
then sued Morel for fraud and breach of contract and asked the court for a preliminary injunction against Morel’s
changing of the password. After all, argued 1-800, by making it impossible for 1-800 to control the Web site, Morel, in
effect, had been “selling nothing” when Popsmear sold 1–800 its “trademark rights.”
DID THE ASSETS BEING SOLD INCLUDE THE DOMAIN NAME RIGHTS?
included the domain name rights. The question was complicated by the fact that Morel was the registered owner of
FOR CRITICAL ANALYSIS
Would the court have reached the same conclusion if Morel had not been a party to the purchase agreement?
Why or why not?
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a. 1-800-Postcards, Inc. v. Morel, 153 F.Supp.2d 359 (S.D.N.Y. 2001).
A. SALES OF CORPORATE ASSETS
A corporation that sells all its assets must obtain board of director and shareholder approval.
B. SUCCESSOR LIABILITY IN PURCHASES OF ASSETS
A purchasing corporation is not usually responsible for any liabilities of the seller. Exceptions are—
CASE SYNOPSIS—
Case 41.1: American Standard, Inc. v. OakFabco, Inc.
American Standard, Inc., sold its Kewanee boiler division to OakFabco, Inc. OakFabco agreed to buy the assets
subject to the liabilities. These liabilities were defined to include “all the debts, liabilities, obligations, and
commitments (fixed or contingent) connected with or attributable to Kewanee existing and outstanding at the Closing
Date.” Later, claims alleging injuries from Kewanee boilers—which had been made with asbestos before the sale of the
division to OakFabco—began to mount. American Standard filed a suit in a New York state court against OakFabco,
seeking a declaratory judgment that liability for the injuries was among the liabilities OakFabco assumed. The court
issued the judgment. A state intermediate appellate court affirmed. OakFabco appealed.
suggests that the parties intended OakFabco, which got all the assets, to escape any of the related obligations.” IN fact,
manufactured, sold, leased or installed by Kewanee on or prior to the” date of the sale.”
…………………………………………………………..……………………………………………………………………
Notes and Questions
Why is an acquiring corporation shouldered with the liability of an acquired corporation when the acquirer was
most likely not involved in the circumstances that gave rise to the liability? It is a question of fairness. Corporate
wrongdoers could otherwise avoid liability in almost any circumstance by effecting a merger, consolidation, share
exchange, or purchase of assets, and a firm with knowledge of the wrongdoing could acquire the assets, taking
advantage of the wrongdoing, with impunity.
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financial background of a potential target through the resources of the Internet.
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 41.1
Generally, a corporation that purchases the assets of another is not automatically responsible for the liabilities of
mentioned applied to the case.
III. Purchase of Stock
An acquiring corporation may deal directly with shareholders to buy their shares.
A. TENDER OFFERS
A public offer to all shareholders is a tender offer. The price is usually higher than the market price of the stock
before the offer, but there may be a condition: the receipt of a specified number of outstanding shares by a speci-
fied date, for instance. Federal and state securities laws and takeover legislation control the terms, duration, and
circumstances of most tender offers.
B. RESPONSES TO TENDER OFFERS
The target firm may or may not accept the offer. If firm does not want to accept the offer, it can make a self–
tender and buy its own stock, or the firm might engage in a media campaign against the tender offer. Some other
possible responses are defined in the following chart.
ADDITIONAL BACKGROUND—
More Takeover Defenses
Federal and state securities laws and takeover statutes control the terms, duration, and circumstances of most
tender offers. Some possible responses are listed in the text. Other takeover defenses include those listed here.
Lobster Trap
Lobster traps are designed to catch large lobsters but allow small lobsters to escape. In the
“lobster trap” defense, holders of convertible securities (corporate bonds or stock that is
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convertible into common shares) are prohibited from converting the securities into common
shares if the holders already own, or would own after conversion, 10 percent or more of the
voting shares of stock.
Scorched Earth
Tactic
The target corporation sells off assets or divisions or takes out loans that it agrees to repay in
the event of a takeover, thus making itself less financially attractive to the acquiring
corporation.
bylaws. For example, the bylaws may be amended to require that a large number of
role of a shark that must be repelled.
C. TAKEOVER DEFENSES AND DIRECTORS’ FIDUCIARY DUTIES
The directors of the target firm must act in the best interest of their company in deciding whether the
shareholders’ acceptance or rejection of the offer would be most beneficial. The directors must fully disclose all
material facts.
D. TAKEOVERS AND ANTITRUST LAW
A target may seek an injunction on the ground that a takeover will violate antitrust laws..
IV. Termination
The termination of a corporation has two phases—dissolution and winding up.
A. VOLUNTARY DISSOLUTION
Two ways (shareholder-initiated and board-initiated shareholder vote) in which dissolution can be brought about
are noted in the text. Articles of dissolution are filed with the state, and claims against the firm must be filed
within 120 days 9RMBCA 14.06]
CASE SYNOPSIS—
Case 41.2: Parent v. Amity Autoworld, Ltd.
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is the failure to afford a creditor a sufficient opportunity for a review of his or her claim against a corporation on which
proceedings for voluntary dissolution.”
Notes and Questions
UCC Article 6 (which has been repealed in New York and most other states) covered bulk transfers and sometimes
governed such situations as the one at issue in the Parent case. According to an official comment accompanying that
article
the Bulk sale legislation originally was enacted in response to a fraud perceived to be common around the turn of the
[twentieth] century. A merchant would acquire his stock in trade on credit, then sell his entire inventory (“in bulk”)
and abscond with the proceeds, leaving creditors unpaid. The creditors had a right to sue the merchant on the unpaid
debts, but that right often was of little practical value. Even if the merchant-debtor was found, * * * jurisdiction
over him might not have been readily available. Those creditors who succeeded in obtaining judgments often were
fact, the court alluded to the possibility of a claim under a fraudulent conveyance theory.
ANSWERS TO QUESTIONS AT THE END OF CASE 41.2
1. A corporation may do business under a variety of names. How strictly should the law require a judgment to be
issued against a corporation in its “true” name? This case involved a small claim pursued by a plaintiff without the aid
2. Could a corporation’s former directors or shareholders, or its successors, avoid liability following its informal
dissolution by claiming that they did all they felt was necessary to protect its creditors? Why or why not? No, because it
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B. INVOLUNTARY DISSOLUTION
Involuntary dissolution may be the only alternative in some situations, listed in the text [RMBCA 14.20]. Courts
can also dissolve a corporation for mismanagement [RMBCA 14.30].
CASE SYNOPSIS—
Case 41.3: Sartori v. S&S Trucking, Inc.
Tony Stacy and Justin Sartori bought a trucking business with $78,493.68 that Sartori borrowed from First
Interstate Bank in Montana. They formed S&S Trucking, Inc., and agreed to be its only directors, officers, and
shareholders, with each owning an equal number of shares. A month later, Sartori incorporated Brimstone Enterprise
and had S&S’s mail forwarded to Brimstone, transferred S&S’s licenses to Brimstone, and attracted S&S’s customers to
Brimstone. He quit working for S&S and filed a suit in a Montana state court against S&S and Stacy, demanding that the
firm be dissolved. The court set a deadline for the dissolution. The defendants appealed.
…………………………………………………………..……………………………………………………………………
Notes and Questions
If the statute in this case had prescribed irreparable injury to the corporation caused by the directors’ unbreakable
deadlock as a prerequisite to dissolution, how should the court have ruled? Stacy seemed to argue that this is what the
statute required in this case, and in fact, an earlier version of this section had included such a requirement. The state
supreme court emphasized that “[u]nder the present statute, irreparable injury is listed in the disjunctive and is thus
ANSWER TO “THE ETHICAL DIMENSION” QUESTION IN CASE 41.3
Did Sartori or Stacy behave unethically toward the other or the corporation? Discuss. The lower court concluded
that Sartori breached his fiduciary duty to the corporation, causing damages in excess of $4,600 (Stacy claimed the
CHAPTER 41: CORPORATE MERGER, CONSOLIDATION, AND TERMINATION 1009
amount was more than $24,000, including $12,000 in lost profits, $4,600 for a trailer repair, $3,600 for a rental trailer,
$3,300 for permit fees, and miscellaneous other expenses), but did not calculate or award a specific amount. The
Montana Supreme Court reversed and remanded the case for a determination of damages in the corporation’s favor.
Sartori’s breach of fiduciary duty—incorporating Brimstone as an S&S competitor, having S&S’s mail forwarded to
Brimstone, transferring S&S’s licenses to Brimstone, and attracting S&S’s customers to Brimstone—certainly
constitutes unethical conduct.
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 41.3
At the time of the defendants’ appeal, S&S had twelve employees and, according to Stacy, its business was
thriving. Should the court have taken these factors into consideration when deciding whether to order the dissolution
of the firm? Explain. Yes, because the economic situation of an enterprise and the effect of any decision on all of the
allow for the consideration of these factors. If the shareholders who do not seek to dissolve a corporation wish to
continue its business, they can do so by forming a new firm.
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Recent cases concerning shareholder suits to dissolve their corporations include the following.
• Weinmann v. Duhon, 818 So.2d 206 (La.App. 5 Cir. 2002) (an order of dissolution under a limited liability
company’s operating agreement was proper in a dispute between two owners of the company and the other owners
over the company’s management).
• In re Charleston Square, Inc., 295 A.D.2d 425, 743 N.Y.S.2d 170 (2 Dept. 2002) (closely held corporations, whose
business was the construction and sale of houses, could be dissolved, on grounds that the majority shareholders were
oppressing the minority shareholders, when the majority shareholders diverted opportunities to other corporations
and had not paid minority shareholders for houses constructed for the corporation).
C. WINDING UP
When dissolution is voluntary, the directors act as trustees, and court supervision is unnecessary. If that is not
possible (because the directors do not want the job, cannot agree, or shareholders or creditors have good
reasons against it, or dissolution is involuntary), a court can appoint a receiver.
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V. Major Business Forms Compared
The most appropriate form for doing business depends on the characteristics, tax status, and goals of an enterprise.
The text includes an exhibit that sets out the characteristic, advantages, and disadvantages of the major forms of
business organizations.
TEACHING SUGGESTIONS
1. Ask your students whether mergers and consolidations help to foster competition or if they are inherently anti-
competitive. What are some of the standards by which the utility of a merger or consolidation should be measured?
When should mergers and consolidations be encouraged or discouraged?
2. Define a leveraged buy-out (LBO) and ask students whether an LBO has any long-term effects (an acquired compa-
ny’s assets are sometimes sold off to other companies that presumably expect to make some profitable use of those
assets). Can the long-term consequences of an LBO be characterized simply as a transfer of income and a reallocation
of assets, or does the LBO actually damage the competitiveness of the economy? Can an LBO increase the efficiency
of the economy?
3. Why would a firm oppose a takeover attempt? Why would a firm embrace a takeover attempt? Can a firm
general could be reconsidered when studying the antitrust law chapter.
Cyberlaw Link
What does it say about the changes caused by the spread of the Internet, and in particular the Web, that a new
company like America Online could buy a company with old roots like Time/Warner? What does this portend for the
future?
DISCUSSION QUESTIONS
1. What is the difference between a merger and a consolidation? A merger involves the legal combination of two or more
2. Describe the four steps by which a merger or consolidation takes place. Before a merger or consolidation can be
completed, the following steps must be taken: (1) the board of directors of each corporation involved must approve a merger or
3. What is a short-form merger? A short-form, or parent-subsidiary, merger may be accomplished without the approval of
4. What is an appraisal right? Appraisal rights are typically created by statute and permit dissenting shareholders to avoid
5. What sorts of corporate actions require the approval of both the board of directors and the shareholders? Although the
6. When is a corporation that purchases the assets of another corporation normally responsible for the liabilities of the
selling corporation? The purchasing corporation will be responsible for the liabilities of the selling corporation when (1) the
7. What is a tender offer? A tender offer is a public offer made by the acquiring corporation to all shareholders of the target
8. What is a self-tender? A self-tender is an offer by a target company to acquire stock from its own shareholders and
9. What is greenmail? When a takeover is attempted through a gradual accumulation of target company stock rather than a
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
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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, and so on),
including the legal case—if applicable—in which it first appeared.
2. Ask each student to research and write a brief report about a famous merger or consolidation.
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 1: Unocal Corp. owned about 96 percent of the stock of Unocal Exploration Corp. (UXC) when it decided to
merge with UXC. The boards of the two firms appointed committees to consider a short-form merger. The UXC committee
agreed to exchange about half a share of Unocal stock for each UXC share. Glassman and other UXC minority shareholders filed
a suit in a Delaware state court against Unocal, alleging that the firm had breached its fiduciary duty of “entire fairness and full
disclosure.” The court held that the only remedy was the minority’s appraisal right. The plaintiffs appealed. In Glassman v.
Unocal Exploration Corp., the Delaware Supreme Court affirmed. “In a short-form merger, there is no agreement of merger
negotiated by two companies; there is only a unilateral act—a decision by the parent company that its 90% owned subsidiary
shall no longer exist as a separate entity. . . . Those who object are given the right to obtain fair value for their shares through
appraisal.” If the parent corporation had to go through more time–consuming procedures, “it will have lost the very benefit
provided by the statute—a simple, fast and inexpensive process for accomplishing a merger.”
Are there any circumstances in which appraisal would not be the exclusive remedy? Yes. The court acknowledged that
“appraisal would not be the exclusive remedy in a short-form merger tainted by fraud or illegality
What are some of the factors for determining “fair value” when a minority shareholder seeks an appraisal? In its
opinion, the court stated that “[t]he determination of fair value must be based on all relevant factors, including damages and
elements of future value, where appropriate. So, for example, if the merger was timed to take advantage of a depressed
market, or a low point in the company’s cyclical earnings, or to precede an anticipated positive development, the appraised
value may be adjusted to account for those factors.”
CHAPTER 41: CORPORATE MERGER, CONSOLIDATION, AND TERMINATION 1013
Why were the minority shareholders barred from challenging the “entire fairness” of the merger? In this case, a
specific statute sets out the procedures for short-form mergers and grants appraisal rights to minority shareholders. Allowing
minority shareholders to pursue further legal remedies would conflict with the statute.
Besides appraisal rights, do the shareholders of the subsidiary corporation have any other rights when it comes to a
short-form merger? Explain. RMBCA 11.04 provides that a copy of the merger plan must be sent to each shareholder of record
of the subsidiary corporation. There is still no advance notice of the merger, and there is no vote by the shareholders.
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 the voting rights.
Among other things, Green opened the corporate checking account in his own name, not in MPTC’s name, and designated
himself the sole signatory. He did not tell the shareholders about some of the offers to buy MPTC land and did not actively
pursue those offers. He did not disclose that in a sale of some MPTC land, he reserved an option for himself to buy back five
acres. Did the court interpret these acts as oppressive conduct? Yes. Characterizing these acts as exceeding the other
shareholders’ reasonable expectations, the court said, “It is doubtful that any shareholder reasonably expected MPTC would be
controlled by a non-shareholder, who had 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, directors, and controlling
shareholders of a corporation have a fiduciary duty to act in good faith and in a manner they reasonably believe to be in the
best interests of the corporation and all its shareholders.” In particular, in a close corporation such as MPTC, “[d]irectors owe
the highest degree of loyalty and trust to the other shareholders, are required to exercise good faith, and may not use their
power to harm the other shareholders.” A court “may look at breaches of fiduciary duty to measure the type and degree of
oppressive conduct.”
Assessing whether oppression exists, in the context of a request to dissolve a corporation, requires consideration of the
reasonable expectations of the shareholders. What should those “reasonable expectations” include? In the words of the court,
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ANSWERS TO ESSAY QUESTIONS IN
STUDY GUIDE TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
BY HOLLOWELL & MILLER
1. Discuss the following takeover defense terms: greenmail; Pac-man; poison pill; and white knight. Perhaps no other area of
the law can boast as colorful a terminology as that dealing with takeover defenses: Greenmail. When a takeover is attempted
through a gradual accumulation of target stock rather than a tender offer, the intent may be to get the target company to buy
2. Describe the procedure for a merger or a consolidation. Procedures for merger or consolidation vary somewhat among
jurisdictions, but the basic requirements are similar: directors and shareholders must approve, and state formalities must be
satisfied. That is, in more detail: (1) the board of directors of each corporation involved must approve the merger or
consolidation plan, (2) the shareholders of each corporation must approve the merger or consolidation plan at a shareholders’
meeting; (3) articles of merger or consolidation must be filed, usually with the secretary of state; and (4) the state issues a
REVIEWING—
CORPORATE MERGER,
CONSOLIDATION, AND TERMINATION
In November 2002, 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 2006, 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 2008, 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
CHAPTER 41: CORPORATE MERGER, CONSOLIDATION, AND TERMINATION 1015
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
require the approval of two-thirds of the outstanding shares of voting stock. If a shareholder disapproves of a merger
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?
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.
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 an injury? Why or why not? After a merger, the surviving corporation
automatically acquires all of the merged corporation’s property and assets without the necessity of a formal transfer.
Also, the survivor becomes liable for all of the disappearing corporation’s debts and obligations. Thus, the survivor in
this problem may be held liable for the injury suffered by the customer of the disappearing firm.
DEBATE THIS:
Corporate law should be altered to prohibit incumbent management from using most currently legal methods to
fight takeovers. Rarely will an outside group attempt a corporate takeover if the target corporation is well run. For
when a publicly held corporation is well run, its stock price will be relatively high, thereby making it an uninviting
target for takeover. Therefore, if there is a takeover attempt, current management should be prevented from using
many popular defenses, all of which are utilized to benefit management as opposed to shareholders.
Often, corporate takeover specialists will target a corporation, not for the benefit of current shareholders, but as
management cannot properly defend the best interests of current shareholders (and employees, too). Takeover
specialist could therefore easily take over corporations, split them up and sell the parts off for a quick profit.