Increased Judicial Scrutiny of Non-Monetary Settlements of Merger Litigation Threatens Business Model of Some Plaintiffs’ Lawyers
In recent years, the percentage of corporate mergers and acquisitions challenged through stockholder litigation has more than doubled. In 2007, 44% of deals valued over $100 million were the subject of stockholder lawsuits; by 2014, the number was 93%. Merger litigation has become both reflexive and ubiquitous; plaintiffs’ lawyers often file complaints on behalf of stockholders within days of the public announcement of a merger, with little or no pre-suit investigation. Many of these lawsuits are accompanied by requests for preliminary injunctive relief, typically targeting allegedly inadequate disclosures as the source of purported imminent and irreparable harm, together with attending applications for expedited treatment, as to which the applicable standard is quite low. Thus, even though the suit may lack merit either as to the allegedly deficient disclosures, the fairness of the process leading to the merger, or both, such applications create a troublesome and untimely distraction to merging parties focused on closing. There is thus reason for defendants to consider a quick settlement that will resolve the litigation in its entirety, and secure a wide-ranging release of claims in exchange for nothing more than the inclusion of additional disclosures in the target company’s proxy statement.
Click here to read the full article as published in the November 9, 2015 edition of The Temple 10-Q: Temple's Business Law Magazine.