February 3, 2011 by Canadian Underwriter
Merger objection lawsuits in the US have increased in recent years, even as the number of mergers and acquisitions plummeted during the recession era in 2007-09, according to an Advisen special report called Are Merger Objection Suits a Threat to D&O Insurers?
Merger objection lawsuits are filed by disgruntled shareholders of companies that have been, or are about to be, acquired. They typically seek injunctive relief rather than monetary damages, but the plaintiff’s attorney fees are typically included in settlements.
“Thus far these suits have not posed a significant challenge to directors and officers (D&O) insurers,” Advisen says. “But the sheer volume of suits, plus the fact that a single M&A transaction can trigger suits in multiple jurisdictions, suggest they increasingly will have an impact on primary and first excess D&O underwriting and pricing.”
After drifting downward between 2001 and 2003, the number of suits filed per year increased from 18 in 2003 to 107 in 2006.
“Following a one-year lull, the number of suits per year skyrocketed, reaching 335 in 2010,” Advisen notes.
Advisen cites the following reasons for the spike:
“A few merger objection suits have resulted in large monetary settlements, but most seek injunctive relief, with the only monetary component being the plaintiffs attorney fees,” Advisen observes. “Many of these cases come to a quick resolution, keeping defense costs low, and therefore tend to be relatively inexpensive for D&O insurers.”
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