Litigation is often triggered by the announcement of a merger or acquisition (M&A) proposal. Using hand-collected data, we document the types of suits triggered by M&A offers, the factors that influence whether offers are targeted by litigation, the impact of M&A lawsuits on offer outcomes (offer completion rates and takeover premium in completed deals), and the factors that influence whether these cases settle for positive monetary damages.

We find that about 12% of M&A offers announced in our sample period, 1999-2000, lead to litigation. Shareholder lawsuits form the vast majority of all lawsuits. We document that (a) federal court lawsuits, though far fewer than state court lawsuits, attract a significantly higher proportion of bidder and target initiated litigation than state courts; (b) bidder and target lawsuits have significantly lower rates of settlements than other types of lawsuits, and deals involving target lawsuits have lower completion rates, but higher takeover premiums if completed. Target managers typically want to either kill the deal as originally proposed or obtain a higher premium, which will lead to both a lower completion rate and a higher average premium in completed deals; and (c) Offer completion rates are the highest for controlling shareholder squeeze-out offers relative to other M&A offer types. This is not surprising given that a controlling shareholder can unilaterally insure that a deal is completed, simply by having a target board of directors propose a merger transaction and then voting its controlling share interest in favor of the transaction.

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