M&A deals are a focus of the private securities litigation bar, according to a new report from Cornerstone Research. Specifically, 94% or more of M&A deals filed last year with a value of over $100 million resulted in private damage actions, according to the report. Cornerstone Research, Shareholder Litigation Involving Mergers and Acquisitions (March 13, 2014) (here).
The findings are consistent with the trend since 2007. In that year only 44% of the deals resulted in private damage actions. Since that time, however, the number has steadily increased. For example, in 2010 90% of the M&A deals valued over $100 million resulted in one or more private damage actions while in 2011 and 2012 93% of the deals were challenged.
Typically the suits are class actions alleging that the target’s board breached its fiduciary duty or conducted a flawed sales process that did not maximize shareholder value. The suits also frequently involved claims that a sufficiently competitive sale process was not conduct, that there were conflicts of interest and that insufficient information was disclosed, according to the Report.
Many deals resulted in multiple suits. The average M&A deal over $100 million spawned five lawsuits. Some deals resulted in many more suits. For example, the Dell, Inc. buyout resulted in 26 suits while the Telalbs Inc. buyout had 16 and the Avago Technologies, Ltd./LSI Corporation deal drew 14 actions.
The same trends are evident when the size of the deal is limited to $100 million to $1 billion. In 2008 35% of these deals resulted in law suits. The next year that number increased to 81% while in 2010 the percentage climbed to 86%, to 91% in 2011 and to 93% in 2012. In 2013 the number of suits increased to 94%, the same as for all deals over $100 million.
Most M&A deals resulted in suits in multiple jurisdictions. In 2013 62% of the deals drew litigation in more than one court. At the same time the number of deals litigated in three or more courts declined. The most active courts were New York County, New York, Santa Clara County, California and Harris County, Texas.
Finally, most of the suits were resolved before the deal closed. In 2013 75% of the actions filed were resolved before closing. 88% of those resolutions were settlements while 9% of the cases were withdrawn and 3% were dismissed. Concluding most of these actions by closing is consistent with the overall trend for this type of litigation. Since 2007 when 60% of the suits were concluded by closing, the number of actions resolved by the end of the deal has generally increased or remained about constant each year.