Preparing the next merger challenge?
According to the study’s findings, lawyers in 2011 filed fraud suits challenging 91 per cent of all mergers of public companies valued at over $100 million.
This is a marked increase from 2005 when only 39 per cent of mergers were challenged in court. Due to the absence of law enforcement focus on this apparent increase in fraud, the report concludes that ‘this lawsuit epidemic is abuse of the litigation system by trial lawyers,’ and does not indicate a rise in merger fraud itself. In addition, almost all of the suits are settled or dismissed and the overwhelming majority of cases are settled within 100 days of filing, Forbes is reporting. In 2011, 84 per cent of the M&A settlements were ‘disclosure only,’ resulting in minor wording changes in public filings while another 11 per cent resulted in small tweaks to the deal terms.
The study indicates that shareholders are the ones who shoulder the cost of the litigation, with only 10 out of the 202 settlements surveyed producing any money for investors. A similar report on M&A tactics by the New York Bar Association reached similar conclusions, commenting: ‘Publically listed companies are often forced to spend resources trying to coordinate and manage duplicative or overlapping securities litigations (with the brunt being borne by current shareholders), while judicial resources are unnecessarily consumed.'