Mergers and Acquisitions are on the Rise, Inevitably Spurring Securities Class Actions

FRT Admin
Site administrator
April 14, 2014

One of the most common reasons shareholders file class action suits is proposed mergers, representing a significant share of the total class action filings in recent years.

If you follow the news, you know that mergers are happening all over the place. It’s so commonplace that the Wall Street Journal headlined a March 2014 article “First Rule of Mergers: To Fight Is to Lose,” making note of the seeming inevitability of a lawsuit following every merger or acquisition.

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In the first nine months of 2013, mergers and acquisitions totaled $865.1 billion, according to Dealogic. Not only is that a 39% increase over the previous year, but it marks the highest nine-month total recorded since 2008. With an economy that’s been faltering since the mid-2000s, an $865 billion influx is no small chunk of change to help stimulate economic recovery.

While mergers might be a good thing for the economy, shareholders often aren’t pleased with prospective deals. In 2013, shareholders challenged 94% of U.S. public company deals, an increase of 50% since 2012, according to Cornerstone Research.

On average in 2012, a single merger deal sparked five lawsuits. In an article for The New York Times, the author points to the recent announcement of Dell’s potential buyout. As of March 2013, a shocking 21 lawsuits were pending in Delaware Court of Chancery, with three additional filings pending in Texas state court.

Judges are pushing back, sometimes outright dismissing cases or rejecting settlements altogether. Despite this resistance from the courts, shareholders continue to file litigation to protect their interests. It’s important for institutional investors to carefully monitor class actions to identify all viable opportunities.

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