I doubt I need to convince many people, including a great many plaintiffs’ lawyers, that the explosion of M&A cases is a problem. The problem, of course, is not that shareholders bring lawsuits challenging mergers. Challenges to transactions based on problematic processes, such as the one at issue in Smith v. Van Gorkom, have improved corporate decision-making. Rather, the problem is that virtually every acquisition of a public company draws a lawsuit, even though very few transactions are actually problematic, and most cases are filed very quickly, before plaintiffs’ lawyers could possibly have enough information to decide whether the case might have merit.
The result is spurious and wasteful litigation. But very few cases present significant risk, so the vast majority of cases present a simple nuisance that can be resolved through painless additions to the proxy statement and a relatively small payment to the plaintiffs’ lawyers. Although companies that are sued bemoan the macro M&A-case problem, each individual company understandably focuses on its own case, and the vast majority conclude that it’s best to settle it rather than defend it to the bitter end. Collectively, however, the M&A-case problem is significant and needs to be addressed.
‘Enforcement 40’ for 2020
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