Few M&A lawsuits lead to big money

By Judy Greenwald, Crain News Service

BOSTON (April 21, 2014) — Only 2 percent of lawsuits filed in response to merger and acquisition (M&A) deals that settled in 2013 produced significant monetary returns for shareholders, according to a new study by Cornerstone Research Inc.

Just two lawsuits received settlements of more than $5 million in M&A transactions valued at more than $100 million, according to the study, “Settlements of Shareholder Litigation Involving Mergers and Acquisitions, Review of 2013 M&A Litigation,” released April 14 by the Boston-based financial consulting firm.

The 2-percent settlement rate — based on 85 cases identified as reaching a settlement in 2013 — compares with a rate of more than 5 percent in prior years, with the two large monetary settlements down from four in 2012 and seven in 2011, according to Cornerstone.

The latest study follows an earlier Cornerstone study that concluded 94 percent of U.S. M&A deals announced in 2013 valued at more than $100 million were challenged in shareholder lawsuits.

Cornerstone states in its latest report that M&A litigation usually takes the form of class-action lawsuits, with plaintiffs' attorneys typically alleging that the target's board of directors violated its fiduciary duties by conducting a flawed sales process that failed to maximize shareholder value.

Among other survey results, settlements for additional disclosures—or additional disclosures plus other terms—remained prevalent, accounting for nearly 92 percent of settlements reached in 2013.

Average fees requested by plaintiff attorneys in 2013 declined to $1.1 million in 2013 from $1.4 million in 2011 and 2012. Average plaintiff attorney fees requested in disclosure-only settlements were $500,000 in 2013 compared with more than $700,000 in 2009.

“We've seen a steady decline over the last seven years in average plaintiff attorney fees in disclosure-only M&A litigation settlements,” said Lassaad Adel Turki, senior vice president of Cornerstone Research and head of the firm's finance practice, in a statement. “This decrease may reflect the courts' apparent growing skepticism for settlements where shareholders do not stand to benefit monetarily.”

Copies of the study are available on Cornerstone's website. _______________________________________________

This report appeared on businessinsurance.com, the website of Business Insurance magazine, a Chicago-based sister publication of Tire Business.