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M&A litigation trend continues in 2012

If a listed US company is being acquired in a large M&A transaction then it is almost guaranteed that a shareholder suit will follow. The odds are, however, that the shareholders won't benefit - but the lawyers might.

These are some of the conclusions from Cornerstone's annual M&A litigation report, which revealed last month that in 2012 shareholder litigation remained as prevalent as in 2011.

In 2012 US shareholders sued in 93 percent of M&A deals valued over $100mn and in 96 percent of transactions worth over $500mn. These were exactly the same percentages as in 2011, although the number of filed lawsuits fell from 742 in 2011 to 602 last year. Shareholders of acquired firms typically allege that the company's directors failed to maximise shareholder value.

Complainants often claim that the sale is not competitive enough, that a conflict of interests has arisen or that directors did not divulge enough information.

But the outcomes very rarely benefit the shareholders in monetary terms. In 2012, there were 67 unique settlements and, of these, only one of these led to a monetary benefit for the shareholders.

Nonetheless, the largest settlements have continued to increase. The average settlement fund between 2010 and 2012 was $78mn, compared with $36mn between 2003 and 2009.

Indeed, two of the largest settlements occurred in 2012. First, plaintiffs won $110mn after the US energy company Kinder Morgan acquired El Paso, a gas firm. Secondly, plaintiffs were awarded $49mn after Japanese "big three" insurer Tokyo Marine bought out the P&C insurance group Delphi Financial Group.

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