Business Law
Worldwide
and large companies and organizations have been greatly affected with
the ongoing economic recession which has affected the global economy.
American International Group (AIG) has never escaped the economic
recession. Among the various economic struggles that adversely affected
its business, it decided to sell out one of its subsidiaries, 21st
Insurance Company to Farmer’s Insurance. During the second quarter of
the present year, AIG has declared and in fact lost control over 21st
Century after Farmer’s purchased the same for $1.9 billion cash and
capital notes. Farmer’s is a corporate unit of Zurich Financial
Services of Switzerland. The acquisition and consequent joined forces
of these two insurance companies is considered to be the largest auto
insurance in the country. In relation to the course, this paper shall
treat the nature of the acquisition, legal consequences with respect to
the shareholders, and the employees of both corporations and existing
insurance contracts entered into by each insurance corporation with
their respective policy holders.
Corporate acquisition is a mode of expansion, a corporate combination, often resorted to by corporations under distress or are coping from economic distress. In envisages the process of purchase, sale and combination. It serves to guarantee in one way or another, the continued existence of the corporations which are parties thereto through a continued business operations and corporate dealings. Merger is a common form of corporate combination. Among the advantages of corporate mergers or acquisitions is the expansion of resources between and among the constituent corporations, increasing the business capacity by penetrating in other forms of business and expanding their respective market share in the long run. In corporate acquisitions, one of the parties (constituent corporations) to the contract of acquisitions acquires the assets or the shares of stocks including the liabilities of the other constituent corporation. It has the effect of transferring the ownership of the assets, goodwill, properties and liabilities of the acquired corporation. As a consequence, management over the acquired corporation/s is shifted to the new owner thereof (Elmerraji, 2009).
With the consequent outcomes of merger or acquisition, the same is subject to strict regulation by the state. In connection with, Anti-trust laws become applicable. Under the Anti-trust law, corporate combinations can not and should not be resorted to in order to obtain a monopoly of the market share or in any way that would result to a restraint of trade. This is in line with the rule on free competition among businesses and business investors and free trade (No Author, No Year).
In the present case, the corporate acquisition has not violated the Anti-trust law. At present, the corporate combination does not have the effect of establishing a monopoly over auto insurance businesses nor does it restrain free trade, in fact the combined business of both companies merely place them under the third rank of corporations involved in the same field.
The acquisition by Farmers of the 21st Insurance Company does not result to the termination of the latter. Both insurance companies retain their corporate personality. 21st Century shall retain its business name and management shall remain for the time being. Both shall continue their respective business operations, but with expanded clientele this time and an expanded resources for both parties. Robert Woudstra, the present CEO of Farmers declared that there is as yet no plan to change Farmers line of insurance products as an offshoot of the acquisition (DeVore, 2009). Insurance business offerings of Farmers in particular shall remain the same but with expanded resources incorporating that of 21st’s. In the same way, insurance agents of 21st Insurance shall remain connected to the latter. With the expanded business market, Farmer’s agents shall likewise have an expanded clientele from among the 21st‘s customers.
However, while the corporations respectively retain their business names, 21st’s shareholders are now the shareholders of Farmers. Their subscription contracts if any shall now be with the latter. The consequent change in the parties thereto (in effect creating a novation) may be accompanied by a change in the terms and conditions as to the payment, call or voting rights and shareholders’ benefits among others. On the other hand, business creditors/lenders may shift their recourse to the present owner, Farmers. It should be noted that among the terms of the acquisition is the concurrent acquisition of the liabilities of the acquired corporation. Thus, Farmers shall be held liable for existing contractual obligations of 21st Insurance.
In the present corporate combination with both constituent corporations having retained their respective business managements, policy holders of both insurance corporations shall remain in the status of which there were in at the time of the actual buy out. Existing policy contracts shall remain and shall be respected considering that they are already consummated contracts. Consummated contracts can not be terminated without cause except in cases of blatant and extreme breach thereof. Contracts to be entered subsequent to the buy out, while in entered into by the respective constituent corporations shall however be in the name of Farmers, the latter now being the owner of 21st and shall be subject to the new rules and guidelines imposed by the new owners.
In addition, employment contracts with the respective employees particularly of 21st Insurance Company shall be respected. As has been noted and declared by Woudstra, business operations shall remain and continue. This implies that there is no reason to alter existing employment contracts for the time being. While management and corporate practices may vary due to a change in ownership and consequent change in leadership, tenurial rights shall be respected particularly that there has been no massive change in the product lines of the respective corporations. As a result, no lay offs and dismissals of employees are likely to happen for the time being.
Merger and acquisition are considered as business moves among entrepreneurs. The legal consequences herein discussed may appear as simple, yet, actual buyout and change in management, leadership and corporate visions have a great impact in the business operations of the parties thereto. These may not be reflected at the outset however, contractors, employees and policyholders ought to be vigilant in their business relation with the constituent parties. Vested business rights could not be withdrawn particularly those relating to the policyholders and employees. It should be noted that corporate combinations, may it be for the prejudice or advantage of both or either of the parties, have a strong impact on their respective economic standing in the domestic and global economic sphere.
Corporate acquisition is a mode of expansion, a corporate combination, often resorted to by corporations under distress or are coping from economic distress. In envisages the process of purchase, sale and combination. It serves to guarantee in one way or another, the continued existence of the corporations which are parties thereto through a continued business operations and corporate dealings. Merger is a common form of corporate combination. Among the advantages of corporate mergers or acquisitions is the expansion of resources between and among the constituent corporations, increasing the business capacity by penetrating in other forms of business and expanding their respective market share in the long run. In corporate acquisitions, one of the parties (constituent corporations) to the contract of acquisitions acquires the assets or the shares of stocks including the liabilities of the other constituent corporation. It has the effect of transferring the ownership of the assets, goodwill, properties and liabilities of the acquired corporation. As a consequence, management over the acquired corporation/s is shifted to the new owner thereof (Elmerraji, 2009).
With the consequent outcomes of merger or acquisition, the same is subject to strict regulation by the state. In connection with, Anti-trust laws become applicable. Under the Anti-trust law, corporate combinations can not and should not be resorted to in order to obtain a monopoly of the market share or in any way that would result to a restraint of trade. This is in line with the rule on free competition among businesses and business investors and free trade (No Author, No Year).
In the present case, the corporate acquisition has not violated the Anti-trust law. At present, the corporate combination does not have the effect of establishing a monopoly over auto insurance businesses nor does it restrain free trade, in fact the combined business of both companies merely place them under the third rank of corporations involved in the same field.
The acquisition by Farmers of the 21st Insurance Company does not result to the termination of the latter. Both insurance companies retain their corporate personality. 21st Century shall retain its business name and management shall remain for the time being. Both shall continue their respective business operations, but with expanded clientele this time and an expanded resources for both parties. Robert Woudstra, the present CEO of Farmers declared that there is as yet no plan to change Farmers line of insurance products as an offshoot of the acquisition (DeVore, 2009). Insurance business offerings of Farmers in particular shall remain the same but with expanded resources incorporating that of 21st’s. In the same way, insurance agents of 21st Insurance shall remain connected to the latter. With the expanded business market, Farmer’s agents shall likewise have an expanded clientele from among the 21st‘s customers.
However, while the corporations respectively retain their business names, 21st’s shareholders are now the shareholders of Farmers. Their subscription contracts if any shall now be with the latter. The consequent change in the parties thereto (in effect creating a novation) may be accompanied by a change in the terms and conditions as to the payment, call or voting rights and shareholders’ benefits among others. On the other hand, business creditors/lenders may shift their recourse to the present owner, Farmers. It should be noted that among the terms of the acquisition is the concurrent acquisition of the liabilities of the acquired corporation. Thus, Farmers shall be held liable for existing contractual obligations of 21st Insurance.
In the present corporate combination with both constituent corporations having retained their respective business managements, policy holders of both insurance corporations shall remain in the status of which there were in at the time of the actual buy out. Existing policy contracts shall remain and shall be respected considering that they are already consummated contracts. Consummated contracts can not be terminated without cause except in cases of blatant and extreme breach thereof. Contracts to be entered subsequent to the buy out, while in entered into by the respective constituent corporations shall however be in the name of Farmers, the latter now being the owner of 21st and shall be subject to the new rules and guidelines imposed by the new owners.
In addition, employment contracts with the respective employees particularly of 21st Insurance Company shall be respected. As has been noted and declared by Woudstra, business operations shall remain and continue. This implies that there is no reason to alter existing employment contracts for the time being. While management and corporate practices may vary due to a change in ownership and consequent change in leadership, tenurial rights shall be respected particularly that there has been no massive change in the product lines of the respective corporations. As a result, no lay offs and dismissals of employees are likely to happen for the time being.
Merger and acquisition are considered as business moves among entrepreneurs. The legal consequences herein discussed may appear as simple, yet, actual buyout and change in management, leadership and corporate visions have a great impact in the business operations of the parties thereto. These may not be reflected at the outset however, contractors, employees and policyholders ought to be vigilant in their business relation with the constituent parties. Vested business rights could not be withdrawn particularly those relating to the policyholders and employees. It should be noted that corporate combinations, may it be for the prejudice or advantage of both or either of the parties, have a strong impact on their respective economic standing in the domestic and global economic sphere.
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