Takeover Litigation in 2012

Steven M. Davidoff is an Associate Professor of Law and Finance at Ohio State University College of Law, and Matthew D. Cain is an Assistant Professor of the University of Notre Dame.

Takeover litigation continued unabated in 2012 according to our just released annual report Takeover Litigation in 2012.

We find that 91.7% of transactions in 2012 experienced litigation almost at an almost identical rate as 2011 when 91.4% of transactions experienced litigation. This figure continues the increasing trend of takeover litigation which is now brought at a rate almost 2.5 times that of 2005.

The number of complaints brought per transaction remained about constant in 2012 at 5.0 lawsuits per transaction – identical to the rate in 2011. While the number of lawsuits (and rough approximation of law firms) remained steady from 2011 to 2012, this still represents a more than doubling from the mean number in 2005 of 2.2 lawsuits.

Multi-jurisdictional litigation also remained similar in 2012 with 50.6% of transactions with litigation experiencing litigation in multiple states. This compares to 53.0% of transactions with multi-state litigation in 2011. This rate continues what has been described as the biggest phenomena in takeover litigation. Multi-state litigation has gone from 8.3% of litigations in 2005 to half of all transactions in 2012.

In 2012 “disclosure only” settlements increased. 87.5 percent of settlements were “disclosure only” in 2012 compared to approximately 79.5 percent in 2011. Other types of settlements such as increases in consideration paid in the takeover or an amendment to the merger agreement to reduce the termination fee correspondingly declined in 2012 to approximately 12.5 percent of settlements. This figure is down from 20.5 percent of settlements in 2011.

So far for 2012 average attorneys’ fee awards are down substantially. The average attorneys’ fee award in 2012 was $716 thousand versus $1.43 million in 2011. This is the lowest average rate in the last six years. However, the averages are driven by a few significant settlements and the median fees are much more similar, at $595 thousand in 2012 versus $580 thousand in 2011. Similarly, for “disclosure only” settlements the average attorneys’ fee award in 2012 was $526 thousand compared to $517 thousand in 2011. Other types of settlements such as an increase in consideration and amendments to the merger agreement to reduce the termination fee had lower attorneys’ fee awards in 2012 and averaged $1.529 million, down from $4.397 million in 2011.

Delaware in 2012 attracted 46.7% of all litigation which could conceivably go to Delaware. The rate of litigation in 2012 is a slight decrease from 2011 when 52.8 percent of cases in play went to Delaware. Based on these preliminary figures Delaware also dismissed fewer cases. 76.9 percent of Delaware cases settled in 2012. This compares to a settlement rate of 61.5 percent in 2008. Obviously this dismissal and settlement trend may be related more to case quality than any other variable, something our figures do not take into account.

Following the general decline in average attorneys’ fees across states, Delaware also awarded lower average attorneys’ fees of $1.26 million in 2012 compared to $2.205 million in 2011. However, Delaware also awarded higher on average attorneys’ fees. The average attorneys’ fee award in Delaware in 2012 was $1.26 million compared to the general sample average of $716 thousand. Also consistent with the general trend for takeover litigation, “disclosure only” settlements increased in Delaware from 64.3 percent of settlements in 2011 to 87.5 percent of settlements in 2012.

For more information, our report, which also includes historical statistics, is available on the SSRN and will be updated in the summer with more complete information. The information in this report is an outgrowth of our more general research on takeover litigation and jurisdictional competition and our academic study academic study A Great Game: The Dynamics of State Competition and Litigation also available on the SSRN.

The full report is available for download here.

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