Expert commentators suggest the recent Pennsylvania Supreme Court ruling – while not technically changing the law – will add increased risk to mergers in the state, as previously businesses and their lawyers understood that shareholders could not bring claims after a merger completed.
Indeed, it was commonly understood that once a deal was done, the only action shareholders could bring was limited to the right to receive fair value for shares in accordance with statutory dissenters’ rights.
Out the window
But the state supreme court ruling at the end of last month in Mitchell Partners v Irex Corporation has thrown that understanding out the window. According to Pittsburgh-based global law firm Reed Smith, the decision creates ‘a greater post-closing risk than previously’.
While the firm points out that most legal disputes involving mergers are brought before a deal closes, the recent judgment will still have an impact, ‘particularly in situations where discovery in appraisal actions provides a basis for a breach of fiduciary duty claim’.
The ruling will have unnerved the local business community in the US’s sixth most populous state. The governor and state business leaders filed amicus briefs in the matter, with the former claiming that a lower level judgment – which was ultimately supported by the supreme court – flew in the face of existing law.
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