Law Firms Publicize Probes into M&A Shareholder Fairness
Multiple law firms are publicizing investigations into whether shareholders are receiving fair value in a series of corporate mergers and acquisitions. Recent announcements from firms like Monteverde & Associates and The M&A Class Action Firm are examining deals involving companies such as WBS, CCO, RIG, and others. The trend reflects heightened scrutiny on board oversight and potential conflicts of interest in M&A transactions.
- These investigations hinge on the board's fiduciary duties of care and loyalty, which require directors to act in good faith and in a manner they reasonably believe to be in the best interests of the corporation and its shareholders. In an M&A context, this means directors must be informed about the material elements of the proposed transaction and prioritize maximizing value for shareholders over their own interests. - When a merger involves a conflicted controlling shareholder or board, Delaware courts often apply the "entire fairness" standard, which examines both the fairness of the price and the process. This is a more stringent standard of review than the typical "business judgment rule." To meet this standard, defendants must demonstrate that the transaction was entirely fair to the minority shareholders, a burden that often leads to a full trial. - Law firms, such as Halper Sadeh LLC, often initiate these investigations to determine if insiders are receiving substantial financial benefits not available to ordinary shareholders or if the deal terms unfairly limit superior competing offers. These firms may seek increased consideration for shareholders, additional disclosures, or other remedies, often working on a contingent fee basis. - The announcement of an investigation does not necessarily mean that a lawsuit will be filed or that any wrongdoing has occurred. Many of these inquiries are resolved without litigation or result in settlements that may include additional disclosures to shareholders rather than a change in the deal price. - To protect against litigation, boards often obtain a "fairness opinion" from an independent financial advisor or investment bank. This opinion assesses the financial fairness of the proposed transaction to shareholders and serves as evidence that the board exercised its duty of care. - Shareholder litigation challenging M&A deals is common. From 2009 to 2015, between 84% and 94% of all merger transactions over $100 million were challenged by at least one shareholder lawsuit. These lawsuits often allege that the directors breached their fiduciary duties by agreeing to an inadequate price or a flawed sale process. - Recent trends in Delaware courts, a key jurisdiction for corporate law, show a continued focus on issues of controlling shareholder conflicts and the application of doctrines like *Corwin* cleansing, where a fully informed, uncoerced shareholder vote can cleanse a board's decision from further judicial scrutiny. There is also an increasing focus on the specific language of merger agreements and foundational corporate documents.
