I admit that that headline is not the most neutral one I've ever written, but C'mon. We've known for years that merger objection litigation is basically of no benefit to shareholders or companies. The only winners are lawyers. The plaintiffs' lawyers extract fees as part of a settlement that gives shareholders no meaningful benefits and, of course, the defense lawyers bill their clients.
Shareholder litigation challenging corporate mergers is ubiquitous, with the likelihood of a shareholder suit exceeding 90%. The value of this litigation, however, is questionable. The vast majority of merger cases settle for nothing more than supplemental disclosures in the merger proxy statement. The attorneys that bring these lawsuits are compensated for their efforts with a court-awarded fee. This leads critics to charge that merger litigation benefits only the lawyers who bring the claims, not the shareholders they represent. ...
Specifically, under current law, supplemental disclosures are viewed by courts as providing a substantial benefit to the shareholder class. In turn, this substantial benefit entitles the plaintiffs' lawyers to an award of attorneys' fees. Our evidence suggests that this legal analysis is misguided and that supplemental disclosures do not in fact constitute a substantial benefit. As a result, and in light of the substantial costs generated by public-company merger litigation, we argue that courts should reject disclosure settlements as a basis for attorneys' fee awards.
Jill E. Fisch et. al., Confronting the Peppercorn Settlement in Merger Litigation: An Empirical Analysis and A Proposal for Reform, 93 Tex. L. Rev. 557 (2015)
Kevin LaCroix reports:
These days just about every public company merger transaction draws at least one merger objection lawsuit. These lawsuits formerly were filed in Delaware state court alleging violations of Delaware law, but since the 2016 Delaware Chancery Court decision in the Trulia case, in which the court expressed its distaste for this type of litigation, the lawsuits have been filed in federal court based on alleged violations of Section 14 of the Securities Exchange Act of 1934. These cases, through frequently filed, are rarely litigated. They typically are resolved by the defendants’ voluntary insertion of supplemental proxy disclosures and agreement to pay the plaintiff a “mootness” fee.
Federal courts have basically rubber-stamped these settlements, which has just encouraged more lawsuits.
As LaCroix also reports, however, a company with a spine finally met a judge with a brain and the combination gave the merger objection suit the dismissal it so richly deserved. Go read the whole thing.
