No easy money in M&A shareholder suits for plaintiffs

BVWireIssue #139-5
April 30, 2014

A recent report from Cornerstone Research examines trends in shareholder litigation related to mergers and acquisitions. Some highlights:

  • For the fourth consecutive year, shareholders filed suit in more than 90% of M&A deals valued over $100 million;
  • In 2013, 94% of M&A deals prompted challenges from shareholders;
  • M&A deals attracted an average of more than five lawsuits (the Dell Inc. buyout led to 26 suits, which distinguished this transaction as the most litigated deal in 2013);
  • The "go-to court" for M&A litigation has been the Delaware Court of Chancery, which during the past four years has been followed by New York County, N.Y.; Santa Clara County, Calif.; and Harris County, Texas; and
  • In 75% of the deals, there was a resolution before the deal closed. As to the resolution, 88% of the cases resulted in a settlement, 9% were withdrawn by the plaintiffs, and 3% ended in dismissal by the court.

Olga Koumrian, a principal of Cornerstone, points out that in 2013 shareholders settling their claims received monetary returns only 2% of the time. Many of the settlements are disclosure-only settlements, meaning the defendant merely agrees to provide more transactional information to the shareholders. Some courts, including judges in the DE Chancery, have voiced criticism about these settlements because they provide little value to the shareholders. Perhaps in response to the courts' critical view, plaintiff attorneys have demanded fewer attorney fees in these cases in recent years. 

Valuing M&A damages:
The April issue of Business Valuation Update includes an article that discusses a case in the Delaware Chancery Court that dealt with M&A damages. The case was settled before the court could render a verdict, but the expert who testified for the plaintiff gives an inside look at how the valuation of the M&A damage claim was done.

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