Corporate merger and acquisition transactions valued at more than $100 million and challenged by shareholder litigation fell to 84% in 2015 and down further to 64% in the first half of 2016, said a new report released Tuesday by Cornerstone Research.
Those percentages are the lowest since 2009 when 86% of M&A deals valued at more than $100 million were challenged by shareholders.
A case in the Delaware Court of the Chancery — In Re Trulia Inc. Stockholder Litigation — might have influenced the decline in the filings, said Ravi Sinha, Cornerstone principal and author of the report, “Shareholder Litigation Involving Acquisitions of Public Companies.”
The Jan. 22 court ruling in the case upended a pattern of shareholder litigation filing, contending corporate M&A parties failed to disclose sufficient information to enable shareholders to evaluate a deal and make an informed decision on voting, Mr. Sinha said in an interview. As a result, quite a few settlements would occur where the merging parties would disclose additional information and plaintiff law firms would be paid by the parties, while the defendants would be indemnified from further litigation.
But the court ruled that if a so-called disclosure-only settle was reached between shareholders and merging parties, the court would examine whether additional disclosure about the deal would be of value to shareholders, making it harder to get disclosure-only settlements, Mr. Sinha said.
“Monetary consideration paid to shareholders has remained relatively rare,” the report said, adding, “there were only a handful of monetary awards and settlements reached in 2015 and the first half of 2016.”
“The ruling was not unexpected,” Mr. Sinha said, noting a decline beginning in late 2015.
As a result of the ruling, fewer cases have been filed in total and fewer in Delaware specifically, Mr. Sinha said. It remains to be seen whether courts in other states might adopt or interpret the decision, he said, noting they are not required to do so.
The report is available on Cornerstone’s website.