Jurisdictional Effects in M&A Litigation
Journal of Empirical Legal Studies, vol.
We compile the most extensive hand collected data set on all forms of M&A litigation to study
the effects of lawsuit jurisdictions during a sample period (1999 and 2000) of the Fifth Merger Wave in the United States (1993-2001), a wave that was 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 that period. Almost half of the suits are
filed in Delaware, while federal suits account for less than 9% of all suits in our sample. But 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-financial crisis period. We find that litigation filed in state courts, including Delaware, is less of a barrier to deal completion than cases brought in the federal court. Litigation filed in Federal courts 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 deal 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 lawsuits are 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.