Manatt Practice Chair Interviewed on M&A Litigation Uptick
“M&A Deal Lawsuits Soar: Settlements Are Typical But Can Pose Challenges”Inside Counsel
May 2, 2011 - Inside Counsel magazine interviewed Manatt’s David Grinberg, chair of the firm’s Mergers & Acquisitions Practice Group, on the surge in mergers and acquisitions activity over the past 12 months, as well as a corresponding increase in the number of transaction-related shareholder lawsuits and, ultimately, settlements.
The publication reports that more than 21,000 deals totaling $1.9 trillion in volume were announced globally between January 2010 and November 2010, marking a 12 percent volume increase from 2009 figures. This increased activity has resulted in increased use of a lucrative litigation tactic: suing companies for deals that are allegedly unfair to shareholders, either in disclosure or pricing. The lawsuits, sometimes filed within hours of a deal’s announcement, are profitable for plaintiffs firms because companies often settle in order to move forward with their transactions.
"Companies will settle rather than have the expense of a long, protracted fight," Grinberg told Inside Counsel. "No deal is closing while there’s litigation outstanding."
Complicating matters, the publication says, some plaintiffs firms have begun filing M&A deal lawsuits not only where a company is incorporated, often Delaware, but also in the state in which it is headquartered. The resulting multijurisdiction litigation on a single deal could amplify the risk of an adverse decision on corporate defendants because a shareholder suit heard in a state court could result in a jury trial or punitive damages.
Some companies are responding to the threat of multivenue litigation by incorporating provisions into their charters or bylaws that require shareholder claims to be filed only in the Delaware Court of Chancery, where judges routinely hear deal-related cases. Experts warn, the article reports, that creating such provisions is a lengthy process that requires board determination and stockholder approval.
Keeping in mind the potential risks of multiforum litigation, Grinberg advised that general counsel of companies involved in deals should take extra care ensuring their processes are sound.
"Make sure there’s no room for someone to claim that the disclosure is nothing less than wholesome," said Grinberg. "You can’t short-cut the process, either in terms of performing it or documenting it. At the end of the day, that’s what’s going to go in front of the court."
Read the article here.
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