Fewer M&A deals are being litigated by shareholders, while merger objection cases have shifted from state to federal courts.
A new report on shareholder litigation Iooking at acquisitions of public companies has found that 73 percent of US M&A deals valued over $100 million were subject to shareholder litigation last year. The report by Cornerstone Research also shows that following the Trulia Delaware court decision in January 2016, more shareholder litigation on M&A deals has shifted to federal courts.
The report Shareholder Litigation Involving Acquisitions of Public Companies shows while the majority of M&A deals continue to be the subject of shareholder lawsuits, in recent years the rate of M&A litigation has declined from the 2011–2014 peaks of more than 90 percent. The report also reveals a shift in venues for M&A litigation following the January 2016 decision by the Delaware Court of Chancery in In re Trulia, Inc. Stockholder Litigation, 2016 WL 270821 (Del. Ch.), in which the Delaware Court of Chancery announced that it will no longer approve ‘disclosure only’ settlements absent certain conditions. Author of the report Ravi Sinha, a Cornerstone Research vice president, says ‘post-Trulia, M&A deals litigated in federal court have increased, while the two most active state courts saw a substantial decline. In 2017, M&A litigation in federal court rose 20 percent from 2016. At the same time, the number of deals litigated in Delaware decreased from 37 to seven, and from 16 to three in California.’ A total of 112 M&A deals valued over $100 million had associated lawsuits in 2017, down from 137 in 2016. The average number of lawsuits per deal in both 2017 and 2016 was 2.8 – the lowest average in 10 years. For the first time in a decade, more than 50 percent of M&A cases were voluntarily dismissed. Between 2009 and 2014, the annual rate of voluntary dismissal was under 20 percent.
Among the other findings of the report are: the Third Circuit was the most active federal court in 2017; the majority of litigation for 2017 deals was filed in only one jurisdiction; there were no deals in 2017 with more than nine lawsuits filed; in 2017, the first lawsuit was filed an average of 48 days after the deal announcement, compared to 40 days in 2016 and 21 days in 2015; and, the percentage of M&A deals for which litigation was resolved prior to closing has steadily declined, falling from 78 percent in 2012 to 43 percent in 2017. Cornerstone Research provides economic and financial consulting and expert testimony in all phases of complex litigation and regulatory proceedings, working with an extensive network of prominent faculty and industry practitioners.