Shareholders might want to think twice before filing a lawsuit in response to a proposed corporate merger. Chances are good the effort won’t pay off in the end.
In fact, the odds of a legal challenge to an M&A deal resulting in monetary returns for shareholders fell to just 2% in 2013, according to a report released Tuesday by Cornerstone Research. That translates to just two monetary settlements in the last year in the U.S., down from four in 2012 and seven in 2011, among the high-dollar cases that Cornerstone’s experts studied.
The number of plaintiff attorney fees awarded in these M&A cases continued to drop in 2013 as well, with supplemental disclosures remaining the only shareholder consideration awarded in more than half of all settlements last year. And, according to Lassaad Adel Turki, senior vice president of Cornerstone Research, that downward trend is expected to continue.
“We’ve seen a steady decline over the last seven years in average plaintiff attorney fees in disclosure-only M&A litigation settlements,” Adel Turki says. “This decrease may reflect the courts’ apparent growing skepticism for settlements where shareholders do not stand to benefit monetarily.”
None of this came as a surprise to study co-author Olga Koumrian, principal of Cornerstone’s Menlo Park, Calif. office, who said the decline in cash payouts to shareholders has been talked about in M&A circles for some time. “There’s been a lot of discussion of whether these disclosure-only settlements deserve much in the way of attorney’s fees,” Koumrian tells PC360, “so it’s been around this conversation. But it’s always good to see that the data supports it.”
All-in-all, Koumrian says, this trend is not likely to have much of an impact on overall M&A dealflow, as potential payouts account for just a fraction of the total cost of doing a deal of the size Cornerstone Research studied: M&A transactions valued over $100 million.
“As transaction costs go this is a small part,” she says. “The financial advisors will be paid something like $5 or $10 or $20 million on deals of this size, and then the legal advisors will have to be paid. Another half a million on top for these lawsuits is just a small part, right? So I don’t think people would not do a deal because there might be a lawsuit.”
That hasn’t stopped the flood of M&A-related legal action. According to a previous report on this subject from Cornerstone Research (published earlier this year), shareholders filed suit in more than 90 percent of deals in 2013, the fourth straight year that happened.