Document Type
Article
Publication Title
Journal of Corporate Finance
Publication Date
2012
ISSN
0749-5587
Page Number
1248
Keywords
M&A offers, announcement period return, deal completion, rates, takeover premium
Disciplines
Commercial Law | Law
Abstract
Using hand-collected data, we examine the targeting of shareholder class action lawsuits in merger & acquisition (M & A) transactions, and the associations of these lawsuits with offer completion rates and takeover premia. We find that M & A offers subject to shareholder lawsuits are completed at a significantly lower rate than offers not subject to litigation, after controlling for selection bias, different judicial standards, major offer characteristics, M & A financial and legal advisor reputations as well as industry and year fixed effects. M & A offers subject to shareholder lawsuits have significantly higher takeover premia in completed deals, after controlling for the same factors. Economically, the expected rise in takeover premia more than offsets the fall in the probability of deal completion, resulting in a positive expected gain to target shareholders. However, in general, target stock price reactions to bid announcements do not appear to fully anticipate the positive expected gain from potential litigation. We find that during a merger wave characterized by friendly single-bidder offers, shareholder litigation substitutes for the presence of a rival bidder by policing low-ball bids and forcing offer price improvement by the bidder.
Recommended Citation
Randall S. Thomas, C. N.V. Krishnan, and Ronald W. Masulis,
Shareholder Litigation in Mergers and Acquisitions, 18 Journal of Corporate Finance. 1248
(2012)
Available at: https://scholarship.law.vanderbilt.edu/faculty-publications/1316