Cornerstone Research just released a report on M&A litigation settlements in the Court of Chancery. It found that the number and dollar amount of settlements in M&A-related lawsuits filed in Delaware increased substantially from 2019 to 2024. Here’s more from the press release:
In 2024, 21 such settlements totaled $618.3 million in the aggregate, a significant increase from five settlements totaling $110.1 million in the aggregate in 2019.
The report also observed that of the 10 settlements within the study period that equaled or exceeded $100 million, four have occurred since 2022.
The most common settlement amounts during 2022–2024 ranged between $20 million and $50 million, while the most common settlement amounts in prior periods were below $10 million.
Large settlements contributed, but it says there has also been an increase in the number of smaller settlements.
In 2024, 21 such settlements totaled $618.3 million in the aggregate, a significant increase from five settlements totaling $110.1 million in the aggregate in 2019. The report also observed that of the 10 settlements within the study period that equaled or exceeded $100 million, four have occurred since 2022. The most common settlement amounts during 2022–2024 ranged between $20 million and $50 million, while the most common settlement amounts in prior periods were below $10 million.
A “typical” settlement in the study was one involving “a dispersed group of stockholders alleging unfair consideration paid for their shares due to alleged actions by a controller.”
In 78% of settlements, the plaintiffs were stockholders of the target company in the M&A transaction.
74% of settlements included allegations involving actions by the controlling stockholder.
There’s a lot more data in the full report, and the D&O Diary blog has a longer summary.
Seyfarth Shaw recently published the 11th edition of its “Middle Market M&A SurveyBook,” which analyzes key contractual terms for over 150 middle market (i.e., purchase price of less than $1 billion) private target acquisition agreements signed in 2024 and the first half of 2025. As in recent years, it presents data for deals that included R&W insurance separately from deals where no R&W insurance was utilized. Here’s a discussion on the prevalence of fraud exceptions to the indemnity provisions:
– Of the non-insured deals that included a fraud exception, approximately 69% of such deals defined the term “fraud,” as compared to approximately 67% in 2023/2024.
– Of the insured deals that included a fraud exception, approximately 99% of such deals defined the term “fraud,” as compared to approximately 96% in 2023/2024.
It then provides a few examples of fraud definitions based on the agreements reviewed for the Survey, ordered from most to least seller protective.
– “Fraud” means, with respect to a Party, an actual and intentional fraud in respect of the making of any representation or warranty set forth in Article 5 or Article 6, as applicable, with intent to deceive the other Party, or to induce that Party to enter into this Agreement and requires (a) a false representation of material fact made in Article 5 or Article 6, as applicable, (b) any of the Knowledge Parties had actual knowledge that such representation was false when such representation was made, (c) an intention to induce the Party to whom such representation is made to act or refrain from acting in reliance upon it, (d) causing that Party, in justifiable reliance upon such false representation and with ignorance to the falsity of such representation, to take or refrain from taking action, and (e) causing such Party to suffer damage by reason of such reliance. For the avoidance of doubt, “Fraud” shall not include any claim for equitable fraud, promissory fraud, unfair dealings fraud, omission, any tort (including any claim for fraud) to the extent based on constructive knowledge, negligent or reckless misrepresentation, extra-contractual fraud, constructive fraud, and other fraud-based claims.
– “Fraud” means an actual and intentional misrepresentation of a material fact with respect to the making of the representations and warranties (and, for the avoidance of doubt, not constructive fraud, equitable fraud or negligent misrepresentation or omission) in this Agreement or the Ancillary Documents, that was relied upon by a Seller or Buyer Indemnitee, as applicable, to its detriment.
– “Fraud” means intentional (and not reckless) fraud within the meaning of Delaware common law.
– “Fraud” means common law fraud under Delaware law.
Check out the full survey for more info on “what’s market” when negotiating private target acquisition agreements.
– The reps and warranties insurance market is not growing at the rate seen in previous years. A notable development has been the consolidation of Themis into Ryan, with Ryan taking over Themis’s book of business and absorbing its underwriters. Mergers like this can influence competition, pricing, and capacity in the sector.
– The market continues to be highly competitive. We have stopped seeing quotes for less than 2% of the limit, but we rarely see a quote as high as 3%. The rate is still much lower than it was in 2022, when it averaged 5.1% in the first quarter.
– The RWI market is evolving to better serve smaller transactions that were traditionally overlooked due to high costs and extensive diligence requirements. Two underwriting markets are creating products and processes specifically for smaller deals. They offer standardized policies, simplified underwriting, and cost-effective coverage, making RWI accessible for deals under $50 million.
The report also notes that claim activity is on the rise, as often happens during economic downturns, and that’s been accompanied by increased dissatisfaction with how claims are being handled. The report suggests that part of the reason for the increasing dissatisfaction is insureds taking a shot at more speculative claims. The report says that this is leading to “an almost two-tier system” for RWI claims, in which some carriers are pushing back on legitimate claims based on small technicalities, while others continue to take a more accommodating approach.
In Peña v. MacArthur Group, (Del. Ch.; 10/25), the Chancery Court refused to dismiss claims that a corporation’s merger conversion into a limited liability company conferred a non-ratable benefit to the company’s insiders in the form of insulation from future liability for breaches of fiduciary duty.
The case originally arose as an appraisal action in connection with the MacArthur Group’s merger conversion into the LLC form, but discovery revealed that certain company officers had used company funds for personal reasons and caused it to into various questionable transactions. The plaintiff amended its complaint to raise direct claims for breach of fiduciary duty against those officers and the corporation’s directors and officers.
The plaintiff alleged that the defendants orchestrated the conversion into an LLC to eliminate potential derivative liability for past breaches of fiduciary duty and, because the LLC’s operating agreement eliminated fiduciary duties, to eliminate the potential for future fiduciary duty claims. The plaintiff contended that these actions conferred a non-ratable benefit on the defendants in the form of a reduction in their potential liability, and that the entire fairness standard of review should apply.
Vice Chancellor Zurn first determined that because the transaction resulting in the surviving entity being “merely the same corporate structure under a new name,” the reorganization exception to the general rule that a target shareholder loses standing to pursue a derivative claim applied to this transaction. Accordingly, she held that since the plaintiff could continue to pursue derivative claims post-closing, the aspect of the transaction did not result in a non-ratable benefit to the insiders.
She reached a different conclusion with respect to the elimination of potential future claims resulting from the conversion to LLC status. She noted that in Palkon v. Maffei, (Del.; 2/25), which challenged TripAdvisor’s reincorporation merger moving the company from Delaware to Nevada, the Delaware Supreme Court distinguished between situations involving “existing potential liability” for the fiduciaries and “future potential liability” for the fiduciaries. In that case, it concluded that any benefits from Nevada’s more lenient liability regime for corporate fiduciaries were purely prospective in nature, and did not result in a non-ratable benefit to the directors and controlling stockholder.
The Vice Chancellor went on to observe that the situation here was different, at least with respect to certain of the defendants:
Here, Mac LLC’s fiduciary duty waiver secured for the former MacArthur directors a waiver that is prospective. And Mac LLC’s fiduciary duty waiver eliminates “all future potential liability for all fiduciary duty claims, including claims for breach of the duty of loyalty.” The parties join issue on the maturity of the MacArthur directors’ litigation risk: whether fiduciary duties were waived on a clear day.
Per Maffei, in this context, the existence of a clear day turns on whether a complaint contains “allegations that the [transaction] decisions were made to avoid any existing threatened litigation or that they were made in contemplation of any particular transaction[.]” Well-pled allegations to that effect support a pleading stage inference that a reduction in mature litigation risk is sufficiently material to trigger entire fairness review. Allegations as to “unspecified corporate actions that may or may not occur in the future” do not suffice.
In this case, Vice Chancellor Zurn concluded that the plaintiff had adequately pled such allegations, at least as to the controlling shareholder and another director, and concluded that because they obtained a non-ratable benefit from the transaction, the entire fairness standard should apply to the allegations against them. However, because the plaintiff did not plead that the remaining directors received a non-ratable benefit or were otherwise conflicted or non-independent, the Vice Chancellor dismissed the plaintiff’s claims against them.
– The 191 campaigns launched YTD are the most ever through Q3, up 19% vs. the long-term average. A record 61 Q3 campaigns has helped drive the record pace; this momentum defied the typical “summer slowdown” and signals a potentially very active Q4 as nomination windows begin to open.
– The U.S. and APAC continue to constitute ~80% of campaign activity; the U.S.’s share of 51% is back in line with the four-year average, while APAC’s share (28%) is on pace to increase for a third consecutive year.
– Elliott launched a record 9 campaigns during Q3, upping its YTD total to 15. Major activists like Elliott drove Q3’s record total, signaling that major activists are increasingly untethered from nomination windows when launching campaigns.
– 2025 is on pace to see a record number of CEO resignations following an activist campaign: YTD, there have been 25 CEO resignations, approaching 2024’s record of 27.
– Activists have won 98 Board seats YTD, up 17% year-over-year, fueled by U.S. settlements (43 YTD vs. 29 YTD in 2024). Major activists Elliott, JANA and Starboard comprise nearly 38% of all Board seats won.
– Increasing activist success in obtaining board seats is also correlated with the improved quality of independent directors appointed –39% of these appointees have public company CEO/CFO experience and 73% have public company director experience.
The report also notes that since 2010, shareholder bases have become more passive and concentrated, with BlackRock, Vanguard and State Street ownership rising to approximately 25% across the major indices and long-only ownership declining. It says that the decision by the Big Three index funds to split-up their stewardship teams and modify their engagement behavior may influence voting outcomes in situations involving activists.
We’ve recently posted another episode of our “Understanding Activism with John & J.T.” podcast. This time, J.T. Ho and I were joined by LDG Advisory’s Lauren Gojkovich. We discussed a range of topics relating to value investors’ approach to activism. Topics covered during this 30-minute podcast include:
– Key motivators for value investors.
– The most and least productive ways to engage with value investors.
– The best way to engage with a value investor who is on the board.
– Factors driving the recent trend toward quicker settlements with activists.
– Increasing quality of value investor candidates for board positions.
– Key takeaways for companies from recent value investor activism successes.
– Thoughts on how value investing may evolve over the next few years.
This podcast series is intended to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. We continue to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
Microsoft’s acquisition of Activision Blizzard has already generated one highly controversial Chancery Court decision & a legislative response, and now the parties are back in the Chancery Court for round two. In round one, Chancellor McCormick refused to dismiss claims that the parties violated multiple provisions of the DGCL in approving the merger. This time around, in Sjunde Ap-Fonden v. Activision Blizzard, (Del. Ch.; 10/25), Chancellor McCormick allowed the plaintiff to move forward with fiduciary duty claims against Activision’s board and its CEO, Bobby Kotick.
The impetus for the Microsoft deal was provided by a sexual harassment scandal at Activision. Adding fuel to the fire was a WSJ article that alleged the CEO knew about the sexual harassment issues at the company for years. That article prompted an employee walkout in an effort to oust the CEO. Shortly after these events, Microsoft indicated an interest in acquiring Activision to the CEO, and he, along with a small group of directors, set in motion the chain of events that culminated in the deal.
The plaintiff’s fiduciary duty claims arose out of the CEO’s role in the transaction and the board’s decision to enter into the merger agreement with Microsoft and a subsequent letter agreement extending the transaction’s “drop dead” date. This excerpt from the Chancellor’s opinion summarizes her decision with respect to the claims related to the merger agreement:
This decision denies the motion to dismiss plaintiff’s core claim. Under the enhanced-scrutiny standard of review, which the defendants themselves advocate for, the plaintiff has stated a claim against Kotick and Activision’s board for breaching their fiduciary duties. The plaintiff alleges that Kotick rushed Activision into a transaction with Microsoft to keep his job, secure his change-of-control payments, and insulate himself from liability, and that he tainted the sale process to secure these outcomes. All of these allegations are reasonably conceivable.
So too are the plaintiff’s allegations against each director. As to the small group of directors who Kotick brought into the process before informing the board, it is reasonably conceivable that: Each knew of [the WSJ article] and the employee protests, and that the company’s stock was depressed as a result; each knew that the timing of the deal with Microsoft was bad for the company and good for Kotick; and each knew that the board-approved plan contemplated a value of $113 to $128 per share. Yet none paused to question the wisdom of rushing into a deal with Microsoft. This makes it reasonably conceivable that the small group members placed Kotick’s interests ahead of value maximization, and so the plaintiff has stated a non exculpated claim against each of them.
The plaintiff also states a claim against the other directors who let Kotick run the process. Ultimately, only twelve days after first learning of Microsoft’s overture, the board authorized Activision’s sale at $95 per share. Given the board’s awareness of Kotick’s conflicts and the company’s higher standalone value, these allegations make it reasonable to infer that they too approved a hasty sale of Activision at $95 per share to serve Kotick’s interests rather than the best interests of the stockholders. That too would constitute bad faith, thus stating a non-exculpated claim.
Chancellor McCormick allowed the plaintiff’s fiduciary duty claims with respect to the letter agreement to proceed as well, for the same reasons. In addition to extending the drop dead date, that agreement eliminated a $3 billion termination fee, narrowed the circumstances under which Activision’s had the right to terminate the merger agreement, and eliminated or waived certain closing conditions.
The Chancellor characterized the board’s decision to authorize the letter agreement as “doubling down” on their prior breaches and said that it was conceivable that this decision was even worse than the decision to enter into the original merger agreement, since they were aware of Activision’s strong financial performance during the period following the execution of the merger agreement.
Chancellor McCormick dismissed a handful of statutory claims made by the plaintiff, as well as aiding and abetting claims made against Microsoft. In dismissing the aiding and abetting claims, she pointed to the Delaware Supreme Court’s recent Mindbody and Columbia Pipeline decisions, which narrowed the circumstances under which a third party buyer could be held liable for aiding and abetting fiduciary breaches by the target’s fiduciaries.
With the lapse in appropriations, federal agencies are currently operating at limited capacity, and the antitrust agencies — the FTC and the DOJ’s Antitrust Division — are no exception. While the agencies remain open to accept HSR filings, the Premerger Notification Office is working on a reduced schedule, as detailed on its website and in the FTC’s shutdown plan. Specifically:
PNO staff will be online from 9 am to 1 pm ET each business day
During this time, the PNO will not respond to questions or requests for information or provide filing advice
Waiting periods will be unaffected and run as usual, but the PNO will not grant early termination
This Cooley alert discusses implications for merger reviews. With the FTC and DOJ Antitrust Division staffed at about half the normal levels, the alert says it’s going to take longer for filings to be reviewed for completeness and compliance and forwarded to staff for substantive analysis and the staff is going to be more likely to encourage parties to “pull and refile.”
This procedure allows the acquirer to withdraw its filing and refile within two business days without paying an additional fee. A “pull and refile” restarts the HSR waiting period, providing the agencies more time to evaluate the competitive implications of a transaction.
If the parties don’t refile, the alert says the reviewing agency may issue a second request for a transaction (presumably even one that normally wouldn’t result in a second request) to ensure it does not close before review is completed.
This Sullivan Cromwell alert says special board committees are the exception, not the rule, and argues that they should be treated as such, because using them comes with costs and risks. As of earlier this year, the circumstances under which a special committee may be necessary have been further narrowed, at least in Delaware. That’s because the DGCL now includes a new statutory presumption of disinterestedness and offers “safe harbor” protections for controlling stockholder transactions if they are either approved by an independent committee or approved or ratified by disinterested stockholders (not both, except in take private transactions).
So when are special committees necessary or appropriate? Not surprisingly, when there are material conflicts of interest or where the market or a court might question the board’s independence for other reasons. For example:
Potential material conflicts include a director having particularly close personal or business relationships with an interested party.
An executive director investing in the private equity fund taking a company private, such that he or she becomes part of the buyer group, for example, could give rise to a material conflict.
However, directors merely owning equity awards in the company or being the target of an activist’s criticism would not, absent other factors, constitute a material conflict requiring the formation of a special committee. Moreover, a more efficient and less problematic approach may be to recuse the director.
However, top executives simply benefiting from change-of-control payments, retention bonuses or accelerated equity awards as a result of an M&A transaction would not create a disabling conflict.
Sometimes, recusal of the conflicted director or an executive session that excludes management participants may be a better approach. For example,
In the activist defense context, special committees can do more harm than good since they divide boards by design – the very dynamic activists seek to exploit. When faced with an activist threat, Delaware courts do not impose heightened fiduciary duties on boards beyond the traditional duties of care and loyalty. Since all directors have an inherent interest in the outcome of an activist attack, there is typically no conflict that warrants establishing a special committee.
[Forming a special committee] can burden the company with an inefficient decision-making process and even risk jeopardizing a proposed transaction that could otherwise be in the best interests of stockholders.
It can also cause serious rifts among board members as to who serves on the special committee and who does not.
[Forming a special committee] can increase transaction expenses, increase the risk of leak, create conflicting advice among external advisors and slow down the transaction process.
Forming a special committee unnecessarily may also signal vulnerability to the market and create an inaccurate appearance of material conflicts, which can, paradoxically, attract more litigation.
Finally, the article suggests a few other methods of handling conflicts:
Where management has a conflict, management will typically still play a role in creating the projections, but the board will take an active role in reviewing the projections (including, on occasion, asking management to run “sensitivities”). On very rare occasions where management’s conflicts are material, a special committee or board may engage an independent advisor to develop separate projections or review management’s projections.
Boards can always consider establishing transaction or ad hoc working groups, which may include the CEO and select directors particularly suited for the role (such as directors with more M&A experience and availability), to receive more frequent updates. These informal working groups (sometimes referred to as committees) typically do not have independent decision-making authority, but rather serve to facilitate the full board’s transaction oversight without incurring unnecessary costs and burdens.
Activists also tend to make requests for the creation of special committees to oversee a strategic corporate review. The working group alternative could satisfy these requests while leaving the ultimate determination on the outcome of the strategic review with the full board.
On Friday, the Chancery Court issued a magistrate’s report in Miller v. Menor (Del. Ch.; 09/25) refusing to find that defendants waived the right to post-closing adjustments because of their failure to timely deliver a closing statement. The statement was due 90 days after closing, and any objections statement was due 30 days after delivery of the closing statement.
The closing statement was delivered late, and communications ensued. But an official objections statement was also ultimately delivered late. The parties were unable to resolve their disagreements, and the issues were submitted to arbitration. Plaintiffs filed suit to vacate the arbitration award partly on the basis of the untimely closing statement, which was not one of the issues raised in the objections statement and addressed in arbitration.
The court distinguished Hallisey v. Artic Intermediate LLC (Del. Ch.; 10/20) and Schillinger Genetics, Inc. v. Benson Hill Seeds, Inc. (Del. Ch.; 02/21), which “stand for the general assertion that failure to timely deliver a closing statement can waive post-closing adjustment procedure.” In both Hallisey and Schillinger, the court said that the failure to timely deliver a Closing Statement meant that the Post Closing Adjustment process could not proceed, which hindered sellers’ ability to respond and have a reasonable opportunity to object.
In this case, the court found that, despite the untimely delivery, plaintiffs had “sufficient time to defend their rights within the Post-Closing Adjustment procedure, and availed themselves of that right by submitting their Objection Statement and engaging in the process to obtain an arbitrator to resolve the objections.” It also noted that “Plaintiffs took an abundance of time, more than the originally allotted 30 days, to submit their objections to the closing statements and proceeded to engage willingly in the Post Closing adjustment procedure with the Arbitrator.” Because of that, it found “there is no underlying reasoning to stop, or in this case retroactively invalidate, the Post-Closing Adjustment procedure.”
Given this reasoning, it seems the outcome would have been different if the plaintiffs had immediately sought relief as soon as the closing statement was untimely or had delivered a timely objections statement that addressed the lateness of the closing statement (which would have then been one of the issues in arbitration). So, this may actually be a good reminder that contractual deadlines DO matter. After working collaboratively to close, it can be easy to just continue asking for support and negotiating when an issue comes up. But, if you’re on the receiving side of a late notice, ignoring it is risky — and it shouldn’t be an indication that you can be late too.