As we’ve reported previously, in recent years, over 90% of all big M&A deals have triggered shareholder suits, many of them filed in the Delaware Court of Chancery. The suits contend that the sale prices are too low.
‘Cookie cutter’ suits: In a recent article in Reuters Investigates, Tom Hals identifies the plaintiff who has filed more lawsuits against companies involved in mergers or acquisitions since 2011 than anyone else—at least 40. She is Hilary Kramer, a “stock-picker and TV commentator.” Hals claims that Kramer is at the forefront of a new type of mass litigation. As soon as a deal is announced, shareholders file “cookie cutter” class actions “parroting” earnings statements or analyst reports as evidence that the buyout price is too low.
Challengers race to be named the “lead plaintiff,” even if they hold only a tiny amount of shares in the defendant company and have no real financial stake, Hals writes. Being the lead plaintiff means having the authority to agree to a settlement on behalf of the class. Plaintiffs’ lawyers meanwhile collect the largest share of the fees. “A lot of well-known activists employ the same law firms to file lawsuits against multiple companies,” a well-known plaintiff’s attorney tells Hals.
Most of the suits end in settlements, which, Hals says, are also nearly identical. Shareholders, and plaintiffs who filed suit, rarely get anything. According to research from Cornerstone, of the 77 settlements reached in 2014, only five generated more than $5 million for shareholders. Primarily, the defendants agree to more disclosure about the deal negotiations in exchange for a release from liability. And they agree to pay plaintiffs’ lawyers a mid-six-figure fee for what is typically just a couple of months’ work, Hals claims.
Pilgrims: The suits have attracted unfavorable attention from some judges, including Vice Chancellor Laster of the Delaware Court of Chancery, who has pointed out that many of them accomplish little. Plaintiffs’ lawyers rush to file a complaint rather than take time to investigate real corporate misconduct, and defense attorneys prefer to settle even a meritless case to ensure the deal goes through. “No one litigates anything,” he wrote in an opinion apropos the 2010 Revlon, Inc. shareholders litigation. “Firms who are early filers are frequently early settlers, leading some wags in the defense bar to label them ‘Pilgrims.’"
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