The Delaware Court of Chancery May Shake Up the “Sue-On-Every-Deal” Phenomenon
It is no secret that nearly every merger of any magnitude in the U.S. today will attract lawsuits by shareholders complaining about the deal. Public company transactions valued over $100 million currently result in litigation nearly 95 percent of the time. These lawsuits typically seek to enjoin the proposed deal, alleging breaches of fiduciary duty on the part of the target companyʼs directors with respect to share price, the sales process and/or disclosures regarding the sale. Rather than risking an injunction, many targets seek to settle these cases quickly, often through disclosure-only settlements—where shareholders receive supplemental disclosures in proxy filings in exchange for dismissing the lawsuits and providing defendants with releases from liability. The shareholdersʼ lawyers also commonly collect fee awards. Cornerstone Research reports that in 2014 approximately 80 percent of merger lawsuits were resolved through disclosure-only settlements. Increasingly, however, these disclosure-only settlements are being criticized by the courts that are asked to approve them, most notably by the Delaware Court of Chancery.