Gerald Brant and Daniel Zimmerman Discuss Options for Shareholders When a Merger Goes Wrong

Cointelegraph has quoted Akin Gump corporate partner Gerald Brant and senior counsel Daniel Zimmerman in the article “Crypto’s Merger Problem and What Can Be Done When M&As Go Wrong,” discussing what shareholders can do in cases of mismanagement in an M&A transaction.

Brant noted that the appropriate amount of scrutiny can vary from case to case. “In general,” he said, “you can’t say that one company should always exercise the same amount of due diligence when acquiring another.” He added that determining how a merger might reflect on a company’s publicly declared “values” can be tricky, although corporations generally consider what an acquisition is likely to mean from a marketing perspective.

“It’s hard to assess how an acquisition could reflect on a company’s values,” Brant stated, “since these can be vague and ill-defined, but most firms will look at the marketing and reputational implications, and whether the two companies are a good fit in terms of corporate culture.”

As for where the responsibility actually lies in terms of evaluating a deal, Brant said it’s not limited to the chief executive. “The fault usually lies with everybody involved in the merger. The CEO, the board, and the advisors.”

Zimmerman pointed out that shareholders have the option of legal action, although this is normally limited, as a practical matter, for serious cases where a decline in share price and company value can be demonstrated as having followed from a merger or acquisition. “Being successful in a claim against a company’s directors,” he said, “is made less likely by the difficulty in pointing to an objectively measurable change in the share price and reputational harm following an acquisition.”

Zimmerman added that, in the case of reputational harm, shareholders would have a better chance of success if they could prove that the directors hid material information when completing an acquisition.

Legally, though, Zimmerman notes that there isn’t anything shareholders can do to stop a merger after the fact.

“Shareholders can attempt to prevent an acquisition via an injunction,” Zimmerman said, “but this has to be sought before the acquisition has been completed.” Trying to prevent an acquisition in a court of law places the burden of proof on the plaintiffs, he said, meaning that this is a viable option only when shareholders have a solid case that a merger would be detrimental to them and the company.