Debate This:

Corporate law should be changed to prohibit management from using the most current legal methods to fight the takeover.

In my opinion, I believe there is a need to make adjustments to the corporate law to prevent management from using legal channels to fight takeovers. A takeover occurs when a business entity seeks to take control over another through acquisition or merger. However, in some cases, the target company may be against the firm's acquisition by another corporation, which leads to a hostile takeover. In this situation, the target company and acquirer can use various methods to fight for and against the takeover. However, corporate law should be changed to prohibit management from using such methods to fight seizures.

Different approaches can be utilized during takeovers. For instance, if share buyback is used, some of the business's vital operations will be disrupted. This method can have significant impact on the company's overall operations, productivity and profitability because it increases the ratios like ROA, ROE, and EPS. These ratios play an important role as far the organization's overall health is concerned. An increase in ROA, ROE and EPS ratios will negatively affect outstanding shares and ultimately hinder the economic growth of the organization.

Legal methods used to fight takeovers are leveraged recapitalization and the poison pill. When using leveraged recapitalization, the business entity changes its capitalization structure. This involves reducing the amount of equity and buying back shares in its capitalization structure. With this method, the corporation is likely to incur high financial risk. On the other hand, the target company uses the poison pill method to discourage the surviving company from taking over the company. The poison pill method dilutes the stock of the hostile party, negatively affecting the general market in the organization. While both of these methods have advantages and disadvantages, they should not be used because their demerits outweigh the merits.