Thursday, April 26, 2012
Rob Daines at Stanford has recently written a study of merger related litigation. Consistent with what others have observed, there's a lot of it:
“It’s one of the three inevitables: death, taxes and deal litigation,” said Robert Daines, a professor of business and law at Stanford Law School and a co-author of the report. “From a public policy perspective, it’s plausible to think there are problems with deals, but it’s really hard to believe there are problems with 100% of the deals.”
The Cornerstone report reveals how lawyers have made up for tighter restrictions on securities class actions — most such cases are now funneled into federal courts, where there are tougher pleading rules — by filing more merger suits in state courts.
And the results aren't necessarily good for shareholders:
In most cases, however, the lawyers negotiate minor changes in the Securities and Exchange Commission filings associated with the deal, or deal modifications such as eliminating so-called “no shop” agreements that restrict the selling company’s ability to seek a higher bid. The problem with these arrangements is they can paper over an otherwise collusive agreement between management and plaintiff lawyers to pay a fee for the litigation to go away.
Cornerstone found that only 5% of the 202 settlements reported in 2010 and 2011 involved cash payments to shareholders, down from 52% of settlements in a study of Delaware lawsuits in 1999 and 2000.