Sunday, June 5, 2011
Litigation in Mergers and Acquisitions, by Randall S. Thomas, Vanderbilt Law School; European Corporate Governance Institute (ECGI); Ronald W. Masulis, University of New South Wales (UNSW) - School of Banking and Finance; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Law School; and Robert B. Thompson, Georgetown University Law Center, was recently posted on SSRN. Here is the abstract:
Using hand-collected data, we examine the targeting of lawsuits in M&A transactions, the effect of these suits on offer completion rates and takeover premiums, and the factors that lead to positive settlement outcomes in these cases. Shareholder lawsuits form the vast majority of all lawsuits. We find that M&A offers that are subject to lawsuits are completed at a significantly lower rate than offers that are not subject to litigation, after controlling for offer features, M&A financial and legal adviser reputation, and industry and time fixed effects, as well as selection bias. However, litigation significantly increases the takeover premium in deals that are completed. Economically, the expected rise in the takeover premium more than offsets the fall in the probability of deal completion, so there is a rise in the expected takeover premium paid in offers that are subject to pre-deal-completion litigation. Examining the different types of lawsuits, suits challenging controlling shareholder squeeze-outs are significantly more likely to lead to settlement and the payment of cash settlements. Target lawsuits, generally designed to impede deal completion, are significantly associated with higher takeover premia in completed deals.