July 13, 2018
Merger Litigation: Cost of Deal Suits Has Soared
Litigation challenging deals has long been a fact of life, but this recent blog from Kevin LaCroix says the cost of that litigation has soared in recent years:
As reported in a July 10, 2018 press release from Chubb, the average total cost associated with a settled merger-objection lawsuit increased 63% in the four year period between 2012 and 2016. The total cost includes attorneys’ fees and cash settlement amounts. In 2012, this figure was $2.8 million. By 2016, the figure had grown to $4.5 million. The average amount for the four year period from 2012 to 2016 was $3.6 million. Of these costs, only about 39% represented amounts going to shareholders. 61% of these amounts went to plaintiffs’ and defense attorneys in the form of fees and expenses.
For merger objection lawsuits that were dismissed rather than settled, the percentage increases over the four year period are even greater. In the four year period between 2012 and 2016, the average total cost increased 162%, from $880,000 in 2012 to $2.3 million in 2016. The average total cost associated with dismissed merger objection lawsuits during the period 2012 to 2016 was about $912,000.
Since the data ends in 2016, it doesn’t fully reflect the impact of recent Delaware decisions like Trulia & Corwin, which have led at least one prominent member of the Delaware plaintiffs’ bar to throw in the towel. But the net effect of Delaware’s actions hasn’t been to lower the volume of merger objection litigation – it’s just migrated to friendlier jurisdictions. Kevin notes that federal courts are becoming a particular favorite among the plaintiffs’ bar, with merger cases accounting for more than 40% of securities class action filings during 2018.
– John Jenkins