Investors Filed Fewer Suits Disputing Deals in 2012Sophia Pearson and Phil Milford
Shareholders filed fewer U.S. lawsuits challenging mergers and acquisitions last year, the second year in which the number of such investor suits has declined, according to a study.
Research by Stanford Law School and Cornerstone Research found shareholders filed 602 lawsuits over deals valued at more than $100 million in 2012, down from 742 the previous year. The percentage of deals litigated remained the same at 93 percent. Shareholders sued in 96 percent of M&A deals valued at more than $500 million, averaging more than five lawsuits for each deal, according to the study released today.
“It is not plausible to think that 96 percent of target boards did a bad job selling the firm,” Robert Daines, a professor at Stanford Law School who helped conduct the study, said in a statement. “Plaintiffs must be filing on cases where there is no underlying problem.”
Global M&A transactions fell almost 8 percent to $2.23 trillion last year, with the deal count falling 4 percent, according to data compiled by Bloomberg. The decline came amid recession fears in Europe and the standoff over $600 million in automatic U.S. government spending cuts and tax increases, known as the fiscal cliff.
Plaintiffs agreed to settle most of the lawsuits that were consolidated for litigation, according to the study. More than 80 percent of those settled cases resulted only in additional disclosures to shareholders, and no cash payout, according to the report.
Awards of attorney’s fees in disclosure-only cases declined to an average of $540,000 in 2012, from $570,000 in 2011.
The average attorney’s fee in all settlements was $725,000, the researchers said. Of the 27 fee amounts disclosed, only three were more than $1 million. The largest was $3.9 million awarded in the Amerigroup Corp. litigation in which shareholders challenged WellPoint Inc.’s $4.9 billion buyout of the managed-care company.
The sizes of monetary settlements have increased in the last three years, according to the report. The average settlement fund during 2010 to 2012 was $78 million, compared with $36 million from 2003 to 2009, according to the report.
Plaintiffs’ attorneys challenged compensation disclosures included in annual proxy statements in 24 lawsuits filed last year, according to the research.
Delaware Chancery Court was the court of choice for 39 percent of lawsuits filed, up from 32 percent in 2011, reversing a declining trend.
For target companies incorporated in Delaware, 16 percent of all acquisitions were challenged only in chancery court, compared with 9 percent of deals in 2011, according to the report.
Shareholders were also quicker to file lawsuits last year, heading to court an average of 14 days after a deal valued at more than $100 million was announced, compared with 17 days the year before.
The majority of lawsuits settled before deals closed, with those agreements coming an average of 42 days after the lawsuits were filed, according to the report. Plaintiffs voluntarily dismissed 59 consolidated lawsuits, or 33 percent of those filed.
The two biggest settlements for 2012 were $110 million awarded in an El Paso Corp. deal and a $49 million accord involving Delphi Financial Group Inc.
El Paso shareholders claimed they were shortchanged in a $21.1 billion buyout by Kinder Morgan Inc.
Delphi Financial, which sells worker’s compensation and group life insurance, agreed to settle a shareholder lawsuit over its $2.7 billion buyout by Tokio Marine Holdings Inc.