March 11, 2013 Articles

M&A Shareholder Suits: A Call for Enhanced Scrutiny of Claims

Growth in shareholder lawsuits has exploded since 2007

By Koji F. Fukumura and Peter M. Adams

“[L]ike mushrooms follow[ing] the rain” (Dias v. Purches, 2012 WL 4503174, *5 (Del. Ch. Oct. 1, 2012)), within weeks—sometimes days—after a publicly traded company announces a merger or acquisition, one or more shareholders of the target company sue the target’s board of directors for breach of fiduciary duty and threaten to enjoin the proposed transaction. See Robert M. Daines and Olga Kourmrian, Recent Developments in Shareholder Litigation Involving Mergers and Acquisitions: March 2012 Update (Cornerstone Research, 2012) at 5 (reporting that, in 2011, 39 percent of shareholder lawsuits were filed within 7 days after a deal was announced, and approximately two-thirds were filed within 14 days).

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