Being True to Trulia: Do Disclosure-Only Settlements in Merger Objection Lawsuits Harm Shareholders?

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See all articles by Giuseppe Dari‐Mattiacci

Giuseppe Dari‐Mattiacci

Amsterdam Law School; Amsterdam Business School; Tinbergen Institute

Eric L. Talley

Columbia University - School of Law

Date Written: March 5, 2019


A significant debate within mergers and acquisitions law concerns the explosive popularity of the “merger objection lawsuit” (MOL), a shareholder action seeking to enjoin an announced deal on fiduciary duty grounds. MOLs blossomed during the Financial Crisis, becoming popularly associated with “shareholder shakedowns,” whereby quick-triggered plaintiff attorneys would file against—and then rapidly settle with—acquirers, typically on non-monetary terms containing modest added disclosures in exchange for blanket class releases and attorney fee awards. This practice unleashed a torrent of criticism from lawyers, commentators, academics, and (ultimately) judges, culminating in a doctrinal shift in Delaware law in the January 2016 Trulia opinion, which virtually prohibited disclosure-only settlements. This paper investigates the implications of this doctrinal shock from a shareholder welfare perspective. We argue that—notwithstanding the intuitive appeal of prohibiting / discouraging disclosure settlements—it is far from clear whether doing so helps or hurts target shareholders ex ante, since the threat of MOLs interacts with other intra-corporate agency costs (such as those of managers and buyers negotiating deals). Reducing the credibility of a litigation threat may deter shakedowns at the cost of reduced deal premia and shareholder value—consequences inconsistent with conventional commitments of corporate law. We develop a theoretical model of company acquisitions formally demonstrating that the competing equilibrium effects of Trulia are indeterminate, an insight that hoists a flag of caution regarding the doctrinal innovation. Moreover, our model delivers testable implications related to Trulia, which we investigate empirically. Our empirical analysis suggest that the recent doctrinal shock does not appear to have resulted in a discernible increase to target shareholder welfare.

Keywords: Mergers and acquisitions, merger objection lawsuits, takeover premiums, shareholder litigation.

JEL Classification: K22, K00, G34

Suggested Citation

Dari-Mattiacci, Giuseppe and Talley, Eric L., Being True to Trulia: Do Disclosure-Only Settlements in Merger Objection Lawsuits Harm Shareholders? (March 5, 2019). Available at SSRN:

Giuseppe Dari-Mattiacci

Amsterdam Law School ( email )

Nieuwe Achtergract 166
Amsterdam, 1018 WV


Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV


Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS


Eric L. Talley (Contact Author)

Columbia University - School of Law ( email )

435 West 116th Street
New York, NY 10025
United States


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