Mergers and acquisition activity continued to attract litigation in connection with virtually every transaction during 2013, and for the first time during 2013 the litigation filing rates for smaller transactions was as great as for larger transactions, according to a study recently released by Cornerstone Research. The study, entitled “Shareholder Litigation Involving Mergers and Acquisitions: Review of 2013 M&A Litigation” can be found here. Cornerstone Research’s March 13, 2014 press release about the study can be found here.
According to the report, during 2013, plaintiffs’ attorneys filed lawsuits in connection with 94 percent of all M&A deals announced during the year and valued at over $100 million, representing a total of 612 lawsuits. In the past, smaller deals (described in the report as those valued between $100 million and one billion), attracted litigation at a lower rate than larger deals (defined as those with a value over $1 billion). However, for the first time during 2013, the percentage of deals attracting litigation was the same for both the “smaller” deals and the “larger” deals – both attracted lawsuits about 94% of the time.
As has been the case for several years, most deals attracted multiple lawsuits, with an average of five lawsuits for those valued between $100 million and $1 billion, and an average of 6.2 lawsuits for deals valued over $1 billion. The Dell, Inc. buyout transaction attracted 26 lawsuits, the most for any single deal during the year.
As has also been the case for several years, deals are attracting lawsuits in multiple jurisdictions. 62 percent of 2013 deals were litigated in more than one court – with 54% of 2013 deals litigated in two jurisdictions and eight percent of 2013 deals litigated in three jurisdictions. (The percentage of deals litigated in three or more courts has declined by half over the last two years.) The Linn Co//Berry Petroleum Deal was challenged in a record six jurisdictions. The most active courts outside of Delaware for M&A litigation were New York County, NY (with 39 deals litigated); Santa Clara County, CA (30 deals); and Harris County, TX (27 deals).
During 2013, three quarters of the M&A deal lawsuits were resolved before the deal closed. Of the cases that were resolved before the deal closed, 88 percent were settled, 9 percent were withdrawn by the plaintiffs, and three percent were dismissed by the court. Looking at the cases filed in prior years, with regard to cases that did not settle prior to closing, the lawsuits remained pending for as long as four years. None of these deals the lived on after the closing went to trial , and all judgments (whether summary judgment or judgment on the pleadings) went to defendants.
The 2013 M&A litigation data in the Cornerstone Research report is consistent with the information previously published by Professors Cain and Davidoff, as discussed here. The Cornerstone Research report’s statistics about what happens to the M&A lawsuits that are not disposed of prior to deal closing is consistent with the analysis discussed in my prior post (here) about the “curse” of M&A lawsuits post-closing. With the proliferation of M&A related litigation, it is now more advisable than ever for companies involved in transactions to take steps in connection with the deal to try to reduce the improve the companies’ abilities to defend themselves in the inevitable lawsuit, as discussed here.