The Dynamics of Disclosure Claims

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1 The University of Texas School of Law The University of Texas School of Law 2012 Mergers and Acquisitions Institute October 18-19, 2012 Dallas, TX The Dynamics of Disclosure Claims Alston & Bird New York, NY Continuing Legal Education

2 The Dynamics of Disclosure Claims

3 Delaware Merger Litigation Trends The Cornerstone Research Study Cornerstone Research Study Results Study indicates that in 2010 and 2011, litigation was filed in connection with 95%/96% of announced public company acquisitions with a value over $500 million, up from 53% in

4 Prevalence Delaware Merger Litigation Trends The Cornerstone Research Study Shareholder litigation challenging merger and acquisition (M&A) deals has increased substantially in recent years. To study this increase and characterize the recent litigation, Cornerstone Research and Professor Robert Daines of the Stanford Law School reviewed reports of M&A shareholder litigation in Securities and Exchange Commission (SEC) filings related to acquisitions of U.S. public companies valued over $100 million and announced in 2010 or [Cornerstone Research] found that almost every acquisition of that size elicited multiple lawsuits, which were filed shortly after the deal s announcement and often settled before the deal s closing. Only a small fraction of these lawsuits resulted in payments to shareholders; the majority settled for additional disclosures or, less frequently, changes in merger terms, such as deal protection provisions. Interestingly, while requiring additional disclosures is a common outcome, [Cornerstone Research did] not encounter a case in which shareholders rejected the deal after the additional disclosures were provided. 2

5 The University of Texas School of Law The University of Texas School of Law 2012 Mergers and Acquisitions Institute October 18-19, 2012 Dallas, TX The Dynamics of Disclosure Claims Projections and the Financial Analyses Performed by Financial Advisors Alston & Bird New York, NY Continuing Legal Education

6 The Dynamics of Disclosure Claims Projections and the Financial Analyses Performed by Financial Advisors Alston + Bird LLP 90 Park Avenue New York, NY (212) Kevin.Miller@alston.com The views expressed herein reflect the views of the author and do not necessarily reflect the views of Alston & Bird or its clients.

7 The Dynamics of Disclosure Claims The Dynamics of Disclosure Claims The disclosure of additional information, particularly quantitative information that could be helpful to shareholders in making an investment decision, has popular appeal and has become a fertile area for disclosure claims even though the Delaware Supreme Court has held that such information (e.g., a company s internal financial projections and a summary of the methodologies used and the ranges of values generated by the financial analyses performed by its financial advisor) is not per se material and is consequently not required to be disclosed absent a showing it is inconsistent with or significantly differs from disclosed information (See Skeen v. Jo Ann Stores, Inc., 750 A. 2d 1170 (Del. 2000)). Apparently disregarding the Delaware Supreme Court s decision in Skeen, the Court of Chancery has issued various rulings that projections and a fair summary of the financial analyses underlying a fairness opinion (including a summary of the valuation methodologies used and the ranges of values generated) are per se material and required to be disclosed. Rather than citing Skeen and ruling in favor of defendants while nevertheless questioning whether Skeen remains viable and inviting plaintiffs to appeal in order to provide the Supreme Court with the opportunity to revisit Skeen (as was essentially done in Steamfitters Local Union 447 v. Walter, No CC (Del. Ch. June 21, 2010)), the Court of Chancery has effectively overturned Skeen, knowing that, as a practical matter, the Court of Chancery s rulings will not be subject to appellate review so long as the costs of abiding by the Court of Chancery s rulings and settling class action disclosure claims based on those rulings (i.e., the plaintiffs attorney s fees awarded) remain relatively modest (typically less than $550,000 even on multi billion dollar transactions) and the benefits (i.e., obtaining a global settlement and avoiding further delay in consummating the transaction) are substantial. 1