In their paper "A Great Game: The Dynamics of State
Competition and Litigation" (here),
Ohio State Law Professor Steven Davidoff and
Notre Dame Finance Professor Matthew
Cain analyzed the M&A related litigation during the period 2005 to
2010. I discussed this article in a prior post, here.
In a newly released February 2, 2012 paper entitled "Takeover Litigation in
Professors Davidoff and Cain supplement their prior research with the
preliminary statistics for takeover litigation in 2011.
The authors review all 2011 transactions involving U.S.
exchange traded companies with a deal size over $100 million, an offer price of
at least $5 per share, with a publicly available merger agreement and a closing
date by January 12, 2012. There were 103 transactions that met these criteria,
which represents a slight decline from the 124 transactions in 2010. However,
the 2011 figures do not include pending transactions from 2011, so these
figures could change as more of the deals are completed.
But while the absolute number of transactions declined
slightly in 2011, the number of transactions that attracted lawsuits increased,
at least as a percentage matter. The authors found that while 84.6% of mergers
attracted litigation in 2010, the percentage rose to 94.2% in 2011. The authors
noted in their original paper that in 2005 only 38.7% of deals attracted litigation,
so the litigation is now brought "at a rate almost 2.5 times that of 2005. The
authors expect that as the pending 2011 deals are completed "we expect that the
ultimate 2011 litigation rate will match or exceed the 94.2% figure."
In addition, the mean number of complaints per deal
remained basically constant in 2011, to with a 2011 per deal mean of 4.8, from
4.7 in 2010. These mean figures represent a doubling of the 2005 mean number of
lawsuits of 2.2. The percentage of deals that attracted multistate litigation
declined slightly to 47.4% in 2011, from 47.6% in 2010.
Disclosure only settlements increase to 84% of all 2011
settlements, compared to approximately 80 percent in 2010.
The authors note that "so far for 2011 average attorneys'
fee awards are down substantially." The mean plaintiffs' attorneys fees awarded
in all settlements declined in 2011 to $784,000, from $1.255 million in 2010.
The mean attorneys' fee award was smaller in disclosure only settlements, with
the 2011 mean disclosure only attorneys fee award of $530,000, down
from$710,000 in 2010. The mean fee award for settlements that involved other
consideration declined to $1.952 million in 2011, down from $3.284. However the
decline in median fee awards for both disclosure settlements and other
settlements was much slighter than the decline in the mean. The median 2011
disclosure only settlement fee award was $450,000, compared to $546,000 in
2010, and the median fee award in 2011 for settlements involving other consideration
was $1.1 million, compared to $1.25 million in 2010.
Delaware drew a much larger share of M&A-related
litigation in 2011. The state attracted 64.3% of all lawsuits involving target
companies incorporated in Delaware or with their headquarters in Delaware,
compared to 44.1% in 2010. The 2011 rate was "the highest rate in the seven
years we have tracked these figures."
Delaware also seems to be dismissing fewer cases, "thus
allowing more cases to be settled." 85.7% of Delaware cases settled in 2011,
compared to 79% of 2010 cases. The authors note that this finding is consistent
with the analysis in their earlier paper, noting that "when Delaware loses
cases to other jurisdictions it historically has dismissed fewer cases and
allowed more to settle, consistent with conduct designed to reattract
Consistent with the overall 2011 attorneys' fee award
trends, Delaware awarded lower average fee awards in 2011. The mean 2011
Delaware fee award was $1.051 million, compared to $2.052 in 2010. Delaware did
continue to award higher attorneys' fees than other jurisdictions, as
Delaware's 2011 average of $1.051 million was substantially above the overall
2011 average of $784,000.
The authors emphasize however that all of the 2011
statistics are preliminary "should be read with caution" particularly given the
delay in the availability of some information (particularly with respect to
attorneys' fees). The authors expect to update their information as the year
Special thanks to Professor Davidoff for providing me
with a copy of his latest paper.
A D&O Primer:
Readers interesting in a good, basic overview of the D&O insurance policy
will want to take a look at the recently published paper "D&O Insurance: A
Primer" by Lawrence Trautman and our good friend Kara Altenbaumer-Price.
Their paper can be found here
2011 Securities Litigation Overview: The
Haynes & Boone law firm has a February 3, 2012 memo entitled "Securities
Litigation Year in Review 2011" (here)
which has a detailed overview of 2011 securities litigation developments. The
memo has several very interesting sections including a section on
extraterritorial litigation; a section on litigation involving auditors; and a
section on litigation involving rating agencies.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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