M&A Deals Continue To Be Challenged In Shareholder Litigation

The percentage of M&A deals challenged by shareholder suits remained largely constant last year while the number of suits filed against each deal declined slightly, according to a recent report by Cornerstone Research (here). In 2014 about 93% of the deals were challenged in litigation compared to 94% in the prior year and 93% in 2012 and 2011. The number of suits per deal declined in 2014 declined however. Last year there were 4.5 suits filed per deal. That compares to 5.2 in 2013, 4.8 in 2012 and 5.4 in 2011.

The most litigated deal in 2014 was the Fusion-io Inc./SanDisk Corporation transaction, challenged in 22 suits. The International Game Technology/GTECH S.p.A. deal was next with 21 suits followed by the Safeway Inc. buyout at 14 and American Realty Capital Healthcare Trust Inc.,/Ventas Inc. with 13 complaints. None of the transactions last year were among the most litigated deals over the last seven years. Those were: The 2008 Genentech Inc. transaction which was challenged in over 30 suits; the 2010 Dynegy Inc. deal which drew 29 suits; and the 2013 Dell Inc. buy-out which was the subject of 26 shareholder complaints.

In contrast with prior years, during 2014 60% of the M&A suits were filed in one jurisdiction. This is the reverse of prior years and is probably the result of forum selection clauses, according to the report. Only four percent of the deals were challenged in more than three jurisdictions, down from the peak of 20% in 2011. The cases were concentrated in five jurisdictions: Delaware where 74 cases were filed; California at 22; New York at 10; Maryland at 10; and Michigan with 6.

Most of the M&A suits continued to be resolved by closing, although the percentage declined in 2014. Last year 59% of the suits were resolved by closing compared to 74% in 2013, 78% in 2012 and 73% in 2011. In 2014 only one suit went to trial. That action arose from the 2011 buyout of Rural/Metro Corp. by Warburg Pincus LLC. RBC Capital Markets LLC went to trail and was found liable for planning to provide financing to the acquirer without disclosing that fact to the Rural/Metro directors. The court awarded $75.8 million in damages.

Finally, of the 78 settlements reached in 2014 for which Cornerstone had data, only 6 involved the payment of monetary consideration. About 80% of the settlements reached in 2014 provided only for disclosure. In contrast, the dollar value of two of the three largest settlements involving a monetary component in 2014 exceeded the largest settlement from 2013. Last year Plans Exploration & Production Co., a 2012 deal, settled with a payment of $137.5 million, Jefferies Group LLC, also a 2012 transaction, resolved with a payment of $70 million and the suit involving the 2013 Garnder Denver Inc. deal concluded with the payment of $29.0 million. In contrast, in 2013 the largest settlement was $42.7 million arising out of the 2010 CNX Gas deal while the second and third largest payments were tied to the 2013 BMC Software Inc. deal which settled at $12.4 million and the Infogroup deal from 2010 that concluded with a payment of $13.0 million.

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