The practice of nominal shareholder plaintiffs challenging virtually every sizable corporate merger with a lawsuit alleging a fiduciary breach has been a scandal for some time. At least when brought by the “bottom fishers” of the plaintiff’s bar, these suits result invariably in a nonmonetary, “disclosure only” settlement that benefits no shareholder, but does justify an award of attorney fees to the plaintiff’s attorney (the only party with an economic interest in the suit).
The near inevitability of M&A litigation is a relatively recent phenomenon, as the rate soared after 2000. One study finds that only 12 percent of M&A transactions attracted litigation in 1999 and 2000, but by 2010, this rate was up to 90 percent, and it peaked at 93 percent in 2012.1 In deals over $500 million, the rate hit 96 percent in 2011 and 2012. What had happened? A group of specialist plaintiff firms had learned that there was no downside, so long as they agreed to a quick and painless settlement. The merging corporations considered them a mere nuisance, not a threat, but their fees were only a small rounding error in multi-billion dollar transactions. For defendants, a settlement was necessary to assure no delay in the transaction’s schedule.
