The average merger and acquisition has as much chance of escaping litigation as you have of winning the lottery.
OK, that’s a slight exaggeration. In recent years, about 97 percent of sizable mergers (those valued at $100 million or more) have been hit by shareholder challenges. These challenges usually produce bupkis for shareholders themselves; the typical settlement results in meaningless additions to the proxy materials, extravagant attorney fees to the lawyers bringing the case, and nothing else. And that, unfortunately, is not an exaggeration. The supplemental proxy additions hardly ever provide useful information to the shareholders themselves, who essentially pick up the tab for their attorneys and get nothing in return. And because the merging companies are as eager to finish the deal as the shareholder attorneys are to collect their fees, the settlement proposals rarely get the sort of adversarial scrutiny you might expect in court proceedings.
This morning, in the Seventh Circuit, Ted Frank, head of CEI’s Center for Class Action Fairness, is arguing a case that may help change all that: In Re: Walgreen Co. Stockholder Litigation, No. 15-3799. The case involves the 2014 merger between Walgreens and the Swiss-based pharmacy company Alliance Boots. The proxy statement soliciting shareholder approval was filed in late November, 2014. In a manner typical of these strike suits, the plaintiff attorneys quickly filed their complaint and a settlement was reached by late December, just before the scheduled shareholder vote. The merger was approved by 97 percent of the votes. For their work the plaintiff attorneys received $370,000, while the shareholders received supplemental information of negligible value. Despite a timely objection by CEI’s John Berlau, a member of the shareholder class, the lower court approved the settlement.
The issue at today’s hearing is whether the district court abused its discretion in approving the deal. A favorable ruling by the appeals panel could have far-reaching effects; shareholder tears won’t be one of them.