The ultimate goal of a merger and acquisition lawsuit is to ensure that a potential deal is fair for all of the shareholders of the company. All too often, mergers and acquisitions are hashed out by a "good old boy" network of corporate chieftains without much accountability or regard for the interests of shareholders. M&A lawsuits help remind management that, ultimately, it is the shareholders that own the company, and that corporate management is accountable to the shareholders.

A typical merger lawsuit brought by shareholders will contain similar elements. The lawsuit will seek to stop the deal pending certain demands, it does this by being filed within a few days after a deal is announced and asking the court to issue a preliminary injunction.

The lawsuit will usually allege a breach of fiduciary duties that has resulted in an inadequate share price offer. The breach of duty allegations will stem from insider dealing, such as management's participation in the proposed buyout. The low offer is usually seen as misleading disclosures in the proxy statement made to shareholders or in other elements of the negotiations as explained by management.

The court will usually grant the shareholder lawyers the right to conduct discovery - a demand to see documents associated with the deal. Most discovery is done on an expedited basis, meaning it is done much more quickly than other types of lawsuits for the simple reason that the deal is pending.

Outcomes

The court may after discovery find that management made materially false statements or omitted material facts to shareholders. This happens more than most people would like to believe. Typical disclosure issues include: failure to tell shareholders about other offers; failure to tell shareholders about perks to senior management such as a bidder who will allow management to stay on after the deal. The court may also find that the plaintiff's are likely to succeed on breach of duty allegations especially when the company has erected barriers to other offers. These barriers often arise when an interested party makes an offer under what is called a Go Shop period (a provision that allows a public company that is being sold to seek other offers even after it has already received a fixed buyout offer. The original offer sets the basis for possible better offers. Most go-shop period last one to two months.

If the bidder has also agreed as part of the bidding process to a standstill period the target company may be able to play games. If a target company rejects the offer under the Go shop period but delays the company to its standstill agreement- meaning it cannot further its offer- the court may side with shareholders that this is a breach of duty. These types of tactics can be used by dishonest management to thwart other offers. In these cases the doors to other better offers and increased shareholder value are opened.

Do you own stock in a company involved in a Merger or Acquisition?

Call our law firm with any concerns at 1-800-934-2921.