April 26, 2012
Daines on merger related litigation
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.
April 26, 2012 | Permalink
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"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."
What does that, precisely, mean?
Posted by: Lawstudent | Apr 26, 2012 2:31:41 PM
Lawstudent: the "otherwise collusive agreement" refers to the possibility that management and plaintiffs' attorneys are in kahoots and that management is basically paying off the plaintiffs' attorneys to drop the suit. Modifications to SEC filings and deal protection measures "paper over" that potentially collusive agreement by making it appear that plaintiffs' attorneys obtained some benefit for the shareholder plaintiffs, when there is likely only a benefit to the attorneys. Hope this helps.
Posted by: Frank | May 5, 2012 11:12:57 AM