March 16, 2017

M&A Litigation: “The Times They Are a Changin’. . .”

This blog from Kevin LaCroix at The D&O Diary summarizes a recent study examining the impact of the significant changes in Delaware’s approach to merger litigation over the past two years.  That study says the results have been dramatic:

The impact of the Delaware’s legislative and judicial actions has been to decrease the volume of merger litigation; to increase the number of cases that are dismissed; to shift the number of cases that are filed from Delaware’s courts to other states’ courts and to federal courts, and to reduce the size of attorneys’ fee awards.

The authors found that “the 2016 filing numbers show the immediate impact of Trulia and its cohort.” The authors found while merger objection transaction litigation peaked in 2013 with an “astounding” 96% of all transactions attracting at least one lawsuit, the number of deals attracting litigation has dropped since then. In 2016, the number of transactions attracting at least one lawsuit fell to 73% of all completed deals.

Perhaps even more significantly, the number of deals attracting a lawsuit in Delaware fell from 61% in 2015 to 32% in 2016.

The decline in Delaware lawsuit filings has been mirrored by a dramatic increase in filings in other states – these filings increased from 51% in 2015 to 65% in 2016. Federal court filings also saw a jump – growing from 20% of filings in 2015 to 37% of filings in 2016.

Kevin summarizes a number of other findings from the study – perhaps the most striking of which is the decline in Delaware settlements over the past two years:

The analysis shows that these Delaware settlements represented only 5% of all settlements in 2016, compared to 55% in 2014 and 40% in 2015. This drop, the authors suggest, shows that “plaintiffs’ attorneys are avoiding Delaware for their settlements and dispositive litigation.”

The long-term effects of the shift in Delaware’s approach to merger litigation remains uncertain – but it is clear that in the short-term at least, plaintiffs have proven themselves adaptable and able to respond quickly to changes in the litigation environment.

John Jenkins