Plaintiff law firms continued to file lawsuits in connection with virtually every mergers and acquisitions transaction in 2012, according to an updated report from Cornerstone Research. The February 2013 report, which is entitled “Shareholder Litigation Involving Mergers and Acquistions” and which was authored by Robert M. Daines of Stanford Law School and Olga Koumrian of Cornerstone Research, shows that plaintiff law firms filed lawsuits on behalf of shareholders in 96 percent of M&A deals valued over $500 million and 93 percent of transactions valued over $100 million. Cornerstone Research’s February 28, 2013 press release regarding the report can be found here. The report itself can be found here.


According to the report, the litigation rate involving M&A deals in 2012 was essentially unchanged from 2011. In both 2011 and 2012, about 93% of all deals valued over $100 million attracted litigation, and 96% of all deals valued over $500 million attracted litigation. Deals valued over $100 million attracted an average of 4.8 lawsuits per deal in 2012 (down slightly from 5.3 per deal in 2011) and deals valued over $500 million attracted an average of 5.4 lawsuits in 2012 (down from 6.1 in 2011).


The report notes that after a contrary trend in recent years, in 2012 a larger percentage of cases were filed in Delaware. In 2012 39% of all M&A lawsuits were filed in Delaware compared to only 25% as recently as 2012. For Delaware Corporations, 16% of deals were challenged only in Delaware, compared with 9% in 2011 and only 2% in 2009.


Of the 58% of cases filed in 2012 that had been resolved, the majority (64%) settled. 33% of the resolved cases were dismissed and 3% were voluntarily withdrawn. (These case outcomes are roughly equal to prior years, although with a certain number of the 2012 cases yet unresolved the settlement rate is slightly higher than prior years.)


Of the 2012 cases that were settled, 81% of the settlements involved only additional disclosures (compared to 88% in 2011 and 76% in 2010). According to the report, “the parties in only one settlement acknowledged that litigation contributed to an increase in the merger price.” The deal termination fee was reduced in four cases and the parties reached agreement about appraisal rights in six cases. There were two large settlements in 2012, both relating to transactions announced in 2011: the $110 million settlement in the El Paso/Kinder Morgan case and the $49 million settlement in the Delphi Financial/Tokio Marine case.


The report includes a detailed table of the ten largest M&A lawsuit settlements during the period 2003-2012. As the report notes, most of the larger settlements in the table “included allegations of significant conflicts of interest.”


The average agreed-upon attorneys’ fee for the 2012 settlements was $725,000, The average fee in a disclosure only settlement was $540,000, down from $570,000 in 2011 and $710,000 in 2010. The report includes an analysis of the factors that influence the size of the fee request. The report notes that “plaintiff attorney fees appear to be influenced by the following factors: size of the settlement fund; other monetary benefit to shareholders; number of suits filed; time to settlement; and overall deal value.”


The report concludes with a review of the emerging litigation involving shareholder challenges relating to annual proxy votes and disclosures about executive compensation, which mounted quickly as 2012 progressed. The report notes that “as the 2013 proxy season approaches, this litigation may expand.”