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Shareholders of Public Target Companies Challenge 82% of M&A Deals in 2018

Number of M&A deals challenged in state venues more than doubled, as Trulia impact stabilizes.

Shareholders of public target companies challenged 82% of merger and acquisition deals valued over $100 million in 2018, consistent with the previous year, according to a new Cornerstone Research report released. A total of 142 proposed deals valued over $100 million had associated lawsuits in 2018, compared to 115 in 2017, reflecting a parallel rise of M&A activity and shareholder lawsuits during the year.

The report, Shareholder Litigation Involving Acquisitions of Public Companies—Review of 2018 M&A Litigation, also found that the impact of the Delaware Court of Chancery’s decision in 2016 in In re Trulia Shareholder Litigation appears to have stabilized. Increased judicial scrutiny of proposed settlements of stockholder merger litigation culminated in the 2016 decision, which diminished the acceptability of disclosure-only settlements in merger objection cases.

There was an easing of the shift from state to federal courts that began with Trulia, with 49 deals litigated in state courts in 2018, up significantly from 21 in 2017.

In the years before Trulia, shareholders litigated around 90% of M&A deals valued over $100 million. In 2016, the year of the Chancery Court’s decision, that rate declined to 71%. In 2017 and 2018, however, the litigation rate rebounded to 82%, but still was below pre-2015 levels.

“There also was an easing of the shift from state to federal courts that began with Trulia, with 49 deals litigated in state courts in 2018, up significantly from 21 in 2017,” said Ravi Sinha, a Cornerstone Research vice president and coauthor of the report. “The most notable trend at the state level occurred in the Maryland state courts, where 12 deals were litigated in 2018, compared to none in 2017.”

The lower propensity to challenge M&A deals still prevails, according to the report. The number of lawsuits per challenged M&A deal has remained around three since Trulia, compared to the 2009 to 2015 average of 4.7 lawsuits per deal.

In terms of litigation outcomes, the rate of resolution prior to deal closing has declined steadily from 68% in 2012 to a 10-year low of 33% in 2018. Also, 70% of M&A litigation was voluntarily dismissed in 2018, down slightly from 72% in 2017. Between 2009 and 2015, the annual rate of voluntary dismissal was 30% or lower.

Key Findings

  • The Third Circuit was the most active federal court in 2018, with more than twice the number of challenged M&A deals compared to the previous year.

  • For Delaware-incorporated targets, plaintiffs filed in Delaware for only 13% of challenged M&A deals.

  • In 2018, only 45% of challenged M&A deals were litigated in one jurisdiction only, a five-year low.

Read the report, Shareholder Litigation Involving Acquisitions of Public Companies—Review of 2018 M&A Litigation.

Copyright ©2020 Cornerstone ResearchNational Law Review, Volume X, Number 3

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About this Author

Ravi Sinha Securities and Financial Analyst Cornerstone
Vice President

Ravi Sinha has more than ten years of experience working with clients and experts to address complex financial and valuation issues. He has analyzed market efficiency, class certification, valuation, and aggregate damages across a variety of matters involving debt, equity, and derivative securities. Mr. Sinha has worked on a variety of merger and acquisition matters. He also has experience in valuing intangible assets such as patents and trademarks. Mr. Sinha is experienced in all phases of litigation, including deposition, mediation, and trial. He has managed large case teams and has...

415.229.8194
Per Axelson Financial Litigation Cornerstone Research
Senior Manager

Per Axelson is an economic consultant at Cornerstone Research, where he specializes in financial litigation support. He has experience in economic consulting and has taught corporate finance at Ibmec, Rio de Janeiro for four years. He holds a PhD in Finance from the Booth School of Economics, where he focused on corporate finance and industrial organization. 

415.229.8174