ArgoVate Hostil Takeover

Argo Vate/Hostil Takeover

ArgoVate/Hostile Takeover

Is this a hostile takeover?

A hostile takeover is described commonly as "acquiring a firm despite the disapproval of, or open resistance from, its board of directors. The acquirer ('raider') usually takes the takeover offer direct to the target firm's stockholders (shareholders) or seeks their approval to remove the obstructing board members." (Business Dictionary, 2013) In this case the takeover is definitely hostile because the AgroVate management does not think that the merger will result in overall betterment but that the employees and shareholders may be affected. On the other hand the purchasing company Bijoux wants to dismantle the current board and sell off AgroVate's widget finishing and the main business being service uniforms; there is no match or significant business advantage in the merger, which prima facie appears to be a hostile takeover.

Can the AgroVate board legally adopt defensive measures against Bijoux?

It is legal for a victim company of a takeover bid to defend itself. It is allowed under the Williams Act amendments to the Securities and Exchange Act of 1934. 2 That regulation is made to protect the share holders. Other than that, the victim company can devalue its shares and make the availability less to the hostile party -- called the poison pill. Lastly the board of directors have been empowered to resist hostile takeovers, including approaching courts.

3) Two types of mergers are mentioned here. Define each type.

Firstly this is a purchase merger because Biijoux wants to buy the company outright and wipe it out. Secondly they are in unrelated business and hence it is also an attempt at making conglomeration. (MBDA, 2013) These two types have been displayed in the scenario. It is also a vertical merger in so far as some of the products of the company align with the production line of the taking over company, though widgets are not.

Part 2 Scenario II

1) What are the specific facts and circumstances which AgroVate's board must take into consideration in deciding how to respond to Bijoux's bid?

Primarily they must consider if it is beneficial to the company to allow competition in the takeover. Because the 'poison pill' can have negative effects in the long run, and there will not be an enthusiastic participation from existing shareholders, considering the fact that the company is slowly declining, there would be a takeover sometime in future if not immediately. It would be foolish to stall the takeover and let the more hostile company finally take over. To prevent that the company may expect higher bidders, and actually raise the value of all its shares and try to issue shares at a very high price. This would encourage the competitors and thus more than one bidder would come. After selecting bidders who are in the same industry to effect a merger the board can the effect a non-hostile merger. Attempting a non-hostile and agreeable merger is the best option.

2) What are some ways that the Maxxo Brothers could challenge that the poison pill plan would constitute self-dealing on their part?

AgroVate's board in putting through the poison pill has to exclude Maxxo Brothers the additional share for each share they own. But that they would not make them shareholders, and whether or not they had controlling interests, they are bound to be treated at par with all the other shareholders unless the board can show specific reasons for the exclusion. That would be a ground for the Maxo brothers to challenge the decision to exclude them.