Jurisdictional Effects in M&A Litigation

Journal of Empirical Legal Studies, Forthcoming

Vanderbilt Law and Economics Research Paper No. 13-14

39 Pages Posted: 12 Jun 2013 Last revised: 23 Sep 2013

See all articles by C. N. V. Krishnan

C. N. V. Krishnan

Case Western Reserve University - Department of Banking & Finance

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Robert B. Thompson

Georgetown University Law Center

Multiple version iconThere are 2 versions of this paper

Date Written: August 16, 2013

Abstract

We compile the most extensive hand collected data set on all forms of M&A litigation in the U.S. to study the effects of lawsuit jurisdictions during a sample period (1999 and 2000) of the Fifth Merger Wave, a period characterized by an abundance of friendly one-bidder deals and the near demise of the hostile offer. We find that only about 12% of all M&A offers are challenged in the courts during this period. Almost half of the suits are filed in Delaware, while federal suits account for less than 9% of the suits in our sample. We find a very small incidence of multi-jurisdictional litigation (about 3% of all suits), unlike the recent sharp increase in such cases in the post-2008 global financial crisis period. We find that litigation filed in Delaware is less of a barrier to deal completion than cases brought in federal court. Litigation filed in federal court is associated with a significantly higher takeover premium in all offers and in completed deals, suggesting that state court cases, on average, put less pressure on bidders to raise takeover premia. In line with these findings, we find that federal courts attract a significantly higher proportion of target initiated litigation than state courts; no target lawsuit is filed in Delaware during our sample period. Finally, we find that while jurisdiction does not significantly affect settlement rates or the consideration paid upon settlements, litigation challenging controlling shareholder squeeze-outs is more likely to settle with cash consideration paid to shareholders, reflecting the stricter judicial standard applied to such bids.

Keywords: M&A Offers, Lawsuits, Delaware Suits, Federal Suits, Other State Suits, Multi-Jurisdiction Suits, Deal completion rate, Takeover premium, Controlling Shareholder Squeeze-outs, Lawsuit Settlements, Consideration Paid, Selection Bias Control

JEL Classification: G34

Suggested Citation

Krishnan, C. N. V. and Masulis, Ronald W. and Thomas, Randall S. and Thompson, Robert B., Jurisdictional Effects in M&A Litigation (August 16, 2013). Journal of Empirical Legal Studies, Forthcoming; Vanderbilt Law and Economics Research Paper No. 13-14. Available at SSRN: https://ssrn.com/abstract=2277878 or http://dx.doi.org/10.2139/ssrn.2277878

C. N. V. Krishnan (Contact Author)

Case Western Reserve University - Department of Banking & Finance ( email )

10900 Euclid Ave.
PBL 363
Cleveland, OH 44106-7235
United States
216-368-2116 (Phone)

HOME PAGE: http://weatherhead.case.edu/faculty/c-n-v-krishnan

Ronald W. Masulis

University of New South Wales - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Robert B. Thompson

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States
(202) 661-6591 (Phone)

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