CORPORATION LAW ASSIGNMENT

Corporation Law Assignment

Corporation Law Assignment

Introduction

Ted should keep consider the fact that Peter Drucker has warned that business had better think through what the policies (on takeovers) should be instead of waiting for the 'scandal' that pushes the politicians into demagoguery. As so frequently happens with market manias of this sort, it is possible that the speculative bubble will burst. Declining oil prices, effective corporate defense measures, greater risks for arbitrageurs, and a scarcity of good targets may all contribute toward making the unfriendly takeover less appealing. The prospect of fewer takeovers, however, does not lessen the need for change. In my view, control over takeovers should lie within the boardrooms of American business, on Wall Street, and in the law firms that advise these enterprises.

Discussion

Ted should invite OurSpace to judge the wisdom of the acquisition? Boards should have as much-if not more-information on acquisitions as they have on internal investments. One irony of the corporate takeover debate is that few talk about the loss of wealth to the bidding shareholders if the takeover is ill-conceived. It merits highlighting at this point that a McKinsey survey of 400 acquisitions shows that only half of them worked; in the other half, shareholders of the acquiring companies lost value (Cremers, Nair & John, 2009). To avoid being pushed into a hurried takeover defense, Ted should inquire about management's defense strategy long before any emergency arises. In the heat of a takeover battle, key decisions are all too often made in a few weeks or even days and on the basis of limited information. While perhaps saving the company from an unwanted suitor, a board is generally not happy about having to adopt a poison pill defense or rush to a white knight.

On its part, the SEC could recommend changes in the rules of the takeover game that would allow more time for careful board and shareholder deliberation, thus making the takeover game more risky for raiders and speculators (Kacperczyk, 2009). Directors must develop a more hard-nosed attitude toward proposals for mergers or acquisitions whether hostile or friendly. Boards of acquiring companies must probe deeply to determine whether a proposal will help create long-term values for shareholders. Will it, for example, result in economies of scale or product or marketing synergies? Will it provide a balance of earnings contra-cyclical to the company's business? They should also concentrate on the consequences of the acquisition for their balance sheets.

Careful planning allows the board time to better exercise its business judgment. Institutional investors should not take for granted that all defense proposals are designed to protect incompetent managements or that they will hurt the value of their portfolio investments. The issues are not that simple (Chava, Livdan & Purnanandam, 2009). Some takeover defenses permit a competent management to focus on the long-term interests of the enterprise without being preoccupied by a possible takeover. Others ensure fairness to all shareholders.

Ted has an advantage through the fact that it has yet to be proven ...