Jurisdictional Effects in M&A Litigation (original) (raw)

Number 13-14 Jurisdictional Effects in M & A Litigation

2013

We compile the most extensive hand collected data set on all forms of M&A litigation to study the effects of lawsuit jurisdictions during a sample period (1999 and 2000) of the Fifth Merger Wave in the United States (1993-2001), a wave that was characterized by an abundance of friendly one-bidder deals and the near demise of the hostile offer. We find that only about 12% of all M&A offers are challenged in the courts during that period. Almost half of the suits are filed in Delaware, while federal suits account for less than 9% of all suits in our sample. But we find a very small incidence of multi-jurisdictional litigation (about 3% of all suits), unlike the recent sharp increase in such cases in the post-financial crisis period. We find that litigation filed in state courts, including Delaware, is less of a barrier to deal completion than cases brought in the federal court. Litigation filed in Federal courts is associated with a significantly higher takeover premium in all offers ...

Litigation in Mergers and Acquisitions

SSRN Electronic Journal, 2000

Using hand-collected data, we examine the targeting of lawsuits in M&A transactions, the effect of these suits on offer completion rates and takeover premia, and the factors that lead to positive settlement outcomes in these cases. Shareholder lawsuits form the vast majority of all M&A lawsuits. We find that M&A offers subject to lawsuits are completed at a significantly lower rate than offers not subject to litigation, after controlling for selection bias, major offer characteristics, M&A financial and legal advisor reputation as well as industry and year fixed effects. Litigation also significantly increases takeover premium in completed deals, after controlling for the same factors. Economically, the expected rise in takeover premia more than offsets the fall in the probability of deal completion, which yields a positive expected takeover premium for offers subject to pre-deal-completion litigation. Examining different types of M&A lawsuits, we find target initiated lawsuits, generally designed to impede deal completion, entail significantly higher takeover premia in completed deals, and suits challenging controlling shareholder squeeze-outs are significantly more likely to result in cash settlements.

Shareholder litigation in mergers and acquisitions

Journal of Corporate Finance, 2012

Using hand-collected data, we examine the targeting of shareholder class action lawsuits in merger and acquisition (M&A) transactions, and the associations of these lawsuits with offer completion rates and takeover premia. We find that M&A offers subject to shareholder lawsuits are completed at a significantly lower rate than offers not subject to litigation, after controlling for selection bias, different judicial standards, major offer characteristics, M&A financial and legal advisor reputations as well as industry and year fixed effects. M&A offers subject to shareholder lawsuits have significantly higher takeover premia in completed deals, after controlling for the same factors. Economically, the expected rise in takeover premia more than offsets the fall in the probability of deal completion, resulting in a positive expected gain to target shareholders. However, in general, target stock price reactions to bid announcements do not appear to fully anticipate the positive expected gain from potential litigation. We find that during a merger wave characterized by friendly single-bidder offers, shareholder litigation substitutes for the presence of a rival bidder by policing low-ball bids and forcing offer price improvement by the bidder.

FROM TRULIA TO AKORN: A RIDE ON THE ROLLER COASTER OF M&A LITIGATION

DELAWARE JOURNAL OF CORPORATE LAW VOL. 44, 2020

In recent years, M&A litigation has experienced a dramatic increase, culminating with a peak in 2015, when over 96 of publicly announced mergers were challenged in a shareholder lawsuit. A large number of these lawsuits were frivolous and vexatious, since most claims were filed by plaintiffs' attorneys just to extract some fees with little effort. Some abusive practices emerged, signalling an alarming exploitation of the system. One scheme that plaintiffs' attorneys put in place was the disclosure-only settlement. There, the stockholders obtained some modest supplemental disclosures, the plaintiff's attorneys got significant fee awards from the defendant directors and the defendant directors secured some blanket class releases from future claims. The scheme relied upon courts' routine practice of approving any settlement, even when there is no benefit for the corporation or its stockholders. A correction became critical. At the beginning of 2016, the Delaware Court of Chancery with In re Trulia marked a doctrinal shift in the standard of judicial review for disclosure-only settlements, by requiring that supplemental disclosures deliver a plainly material benefit to stockholders and that any releases from liability be narrowly circumscribed. But the approach in Trulia is not without some limitations. While federal courts have soon followed Trulia with In Re Walgreen, other states have been slow and sometimes reluctant to do so. Even if Trulia succeeds in restricting disclosure-only settlements, another tactic has arisen to replace it: the mootness dismissal that is a voluntary dismissal coupled with the payment of mootness fees to plaintiffs' attorneys by the defendant. Data on merger litigation show that, like on a roller coaster, after a decline post Trulia, the number of litigated

The Dark Side of Shareholder Litigation: Evidence from Corporate Takeovers

SSRN Electronic Journal, 2015

Exploiting staggered adoption of universal demand (UD) laws by 23 states between 1989 and 2005 as quasi-natural experiments, we show that reduced shareholder litigation threat improves corporate takeover efficiency. Using a difference-indifferences approach, we find that acquirers incorporated in states that adopt UD laws experience significantly higher abnormal announcement returns and better long-run post-merger operating performance. The results suggest that the threat of litigation destroys value ex ante as acquirers make suboptimal deals to reduce the risk of being sued.

Recent Developments in U.S. Merger Litigation

Rivista di diritto societario, 2020

Sez. II-Osservatorio di diritto straniero Marco Rampf e Miriam Augscheller, Cenni in materia di responsabilità amministrativa degli enti e sistemi di CMS nell'ordinamento giuridico tedesco On corporate criminal liability and compliance management systems according to German law Marco Migaldi, Brexit e diritto societario europeo: analisi prospettica delle possibili conseguenze Brexit and European company law: prospective analysis of the potential consequences

Law Firm Expertise and Merger and Acquisition Outcomes

Journal of Law and Economics, 2013

Using a comprehensive sample of U.S. mergers and acquisitions (M&A) bids over 1990-2008, we document that top market share law firms are associated with a number of important bid outcomes and characteristics. Top bidder law firms are associated with significantly higher offer completion rates than other bidder law firms. In contrast, top target law firms are associated with significantly higher offer withdrawal rates than other target law firms. Top bidder and target law firms are both associated with significantly higher takeover premia than less prominent law firms. These associations are significant even after controlling for selection bias and major offer, bidder, and investment bank advisor characteristics. Our interpretation is that top bidder law firms have stronger incentives to facilitate deal completions, while top target law firms have stronger incentives to help realize higher takeover premia, consistent with their respective clients' objectives, than other law firms. Our findings suggest that law firm market share is an important omitted variable in current models of M&A deal outcomes.

The effect of securities class action lawsuits on mergers and acquisitions

Global Finance Journal, 2020

This paper investigates whether shareholder class action litigation affects the takeover candidacy, premium, and completion rate of mergers and acquisitions involving defendant target firms. We use a comprehensive dataset of publicly traded U.S. firms that became the targets of takeover bids between 1998 and 2016 and find that firms subject to shareholder class action lawsuits within the previous two years are more likely to be targeted for acquisition while commanding a significantly higher premium. Firms that face such litigation after a takeover announcement experience a significant decrease in takeover completion.

The legal environment and corporate valuation: Evidence from cross-border takeovers

International Review of Economics & Finance, 2009

We examine the cumulative abnormal returns to U.S. targets, their foreign acquirers, and the targetacquirer portfolio in 181 successful cross-border tender offers during the period 1982-1991. We find that the incentive mechanisms created by the degree of shareholder-creditor rights protection and legal enforcement in the acquiring firm country can explain the observed variation in target, acquirer, and portfolio returns. We also find that foreign acquirers overpay for Delaware-incorporated targets. Our results are strengthened after controlling for deal-related effects addressed in the domestic mergers and cross-border investments literature.